Trade deficit surprises Bank of Canada
Instead of expected $1.6-billion surplus, exports slid into the red in August
OTTAWA — Call it a blip or a seasonal anomaly, but the country’s surprise swing to a trade deficit is bound to give the Bank of Canada some pause for thought on the economy’s wavering momentum.
August was expected to be another healthy month for exports — coming after a $2.2-billion surplus in the previous month. Instead, the value of goods and services delivered to global markets fell into the red by the tune of $610 million, as exports declined 2.5 per cent and imports rose 3.9 per cent.
Forecasters had called for a surplus of $1.6 billion in August — following the July tally, which Statistics Canada on Friday revised slightly downward from its previous estimate of $2.58 billion.
The Bank of Canada “has been repeating concerns regarding the lack of momentum in both exports and business investment in the current expansion,” said Charles St-Arnaud, an economist with Nomura Global Economics in London, who previously worked at the central bank in Ottawa.
St-Arnaud said policy-makers “will remain concerned about growth until we see a sustainable pickup in those sectors ... (and we) remain cautious on the outlook for exports for at least the rest of the year.”
Central bank governor Stephen Poloz has acknowledged signs of traction in a long-predicted rotation to exports and investment as the engines of growth, taking over from the robust household spending that drove the economy’s initial rebound from the 2008-09 recession — helped along by the bank’s near-record-low interest rate policy.
That trendsetting lending rate edged up to one per cent in September 2010, but the direction and timing of the next move could still be another year or two away, depending on how the economy performs. In July, growth in gross domestic product was flat after six monthly gains in a row.
In Friday’s report, Statistics Canada said the value of exports fell by $44.2 billion in August, led by declines in shipments of vehicles and auto parts, as well as energy products. Imports, meanwhile, rose by $44.8 billion during the month.
“It was a bit of a shock, but I think the important thing is ... to put the (export) contraction in context,” said Stuart Bergman, assistant chief economist at Export Development Canada, the Ottawa-based federal credit agency.
“The biggest hits here came in the energy sector, down 5.8 per cent and autos down 11.2 per cent. But when we look at the energy side, that was mainly on weaker prices. And in autos, it was all volumes,” he said.
“We saw plant shutdowns in August, versus the normal shutdowns in July. So, to a certain extent, that would be expected in the August numbers. Even if you look at the import side, auto imports were down 7.2 per cent as well, as a result of the same phenomena.”
Economist Robert Kavcic, at BMO Capital Markets, said “there’s no sugar coating the fact that the August trade report was sorely negative.”
“But, Canadian trade numbers have swung wildly in recent months, partly because of some seasonal distortions, and it’s probably a bit soon to write off the export recovery.”