Global slowdown still hurting trade
Worsening deficit blamed on imports
Canada’s trade performance with the rest of the world worsened for the third consecutive month in June, providing fresh evidence of the global economic slowdown’s impact on the country’s key sector.
Statistics Canada reported Thursday the merchandise trade deficit nearly doubled to $1.8 billion during the month, from an upwardly revised $954 million in May.
It was the third consecutive report showing a widening gap and represented the worst monthly deficit in almost two years.
Although the bottom line was nearly twice economists’ expectations, analysts noted the picture was not as dark as the bottom line suggests as the deficit was entirely on the import side, which saw a 2.3 per cent gain.
Exports were mildly positive, growing 0.2 per cent, and were even stronger in volume terms, rising 1.1 per cent, as soft oil prices cut into the return on shipments. However, all the gain came from one sector — autos — which stamped out a five-year best 13.9 per cent increase in June.
Some economists took comfort in the increase in export volumes, saying it suggests the economy is holding up well in the face of stiff winds from the rest of the world. Even the imports bump could point to increased domestic activity, said David Madani of Capital Economics.
They were also encouraged by the record high level of imports of machinery and equipment at $11.2 billion, reflecting a long-awaited ramp up of business investment that could pay dividends down the road in improved competitiveness.
Still, Bank of Montreal economist Doug Porter said it was difficult to see trade as anything but a negative this quarter and going forward.
For the three-month period ending June, Canada’s trade deficit totalled $3.3 billion, versus a $2.2 surplus in the first quarter.
“Net trade will likely cut roughly 1.5 percentage points from GDP (gross domestic product) growth in Q2, prompting us to shave our Q2 estimate of growth by a tenth to 1.7 per cent,” he said.
“The good news is that commodity prices have bounced since from their late-June lows ... which should provide some support for Canadian export receipts in coming months.” That is if volumes hold up, he added.
Other economic indicators Thursday also gave a mixed picture for economic prospects.
New home starts in Canada fell to 208,500 units in July, from 222,100 the previous month, but remained in healthy territory, as home prices rose 0.2 per cent in June.
South of the border, the U.S. printed its lowest trade deficit in 18 months, a good indicator for Canada, which exports three-quarters of its goods into the world’s largest market.
In an interview with the BBC aired Thursday, Bank of Canada governor Mark Carney said there is already evidence the global slowdown and European crisis in affecting Canada, particularly on the exports front.
“It’s had a knock-on effect, commodity prices are down fairly sharply, about 15 per cent over the course of the last several months,” he said. “There’s is an adjustment and fairly synchronized deceleration of the global economy at the moment.”
In June, exports totalled $39.1 billion. Imports hit a record high of $40.9 billion, with six of seven sectors registering gains, the main contributor being the machinery and equipment sector.
Imports from the United States grew 3.0 per cent to a record high of $25.9 billion, the third monthly increase in a row, while exports rose 2.2 per cent to $29.0 billion.
Meanwhile, imports from countries other than the U.S. increased 1.1 per cent to $15 billion, while exports fell for the third consecutive month, down 5.2 per cent to $10.1 billion in June.