Canada’s exports rise for a second month

Automobiles overtake energy as the country’s biggest export as weaker loonie and U.S. growth help reduce trade deficit

In a sign that Canada’s exports may finally be shifting into a higher gear, the country’s trade deficit shrank in July for the second month in a row, Statistics Canada said Thursday.

Canada’s trade deficit for July came in at a lower-than-expected $593 million, an improvement over June’s revised $811 million deficit, monthly merchandise trade data showed.

“There’s no two ways about it, this is a solid report,” Bank of Montreal senior economist Benjamin Reitzes wrote in a note to clients. “It looks like better U.S. growth and the weaker Canadian dollar might finally be providing a boost to trade.”

Economists had expected a wider $1.2-billion deficit, assuming a pullback from June’s outsized 5.5-percent jump in exports.

Instead, exports continued to grow, albeit at a slower 2.3-per-cent pace, or $1 billion, in July, to $45.5 billion.

“These back-to-back gains were the strongest showing in more than a year, a sign that exporters are perhaps finally shifting into a higher gear,” David Madani, Canadian economist at Capital Economics, wrote in a report.

Autos overtook energy as Canada’s biggest export for the first time in eight years, fuelled by higher U.S. demand for cars and trucks and lower prices for crude oil, the data showed.

Auto and auto-part exports rose 9.9 per cent to $7.5 billion, in part because assembly plants had shorter summer shutdowns to meet rising North American demand, Statistics Canada said. Meanwhile, energy exports fell 5.7 per cent to $7.3 billion and are down 34 per cent since last year, largely on plunging crude oil prices. Imports rose 1.7 per cent, or $800 million, to $46.1 billion, with most of that driven by higher prices as Canada’s dollar fell.

The report, which comes two days after Statistics Canada said the country had been in recession for the first half of the year, buoyed hopes that Canada’s manufacturing sector may finally be taking over from consumers as the future driver of economic performance.

Bank of Canada governor Stephen Poloz, worried that households are carrying record debt levels, has been counting on a lower dollar and stronger U.S. economy to give exports a much-needed boost.

“With the Canadian dollar now at the two-year mark since it first started to depreciate, the nonenergy ex- port sector is expected to finally get the positive boost from the currency we have anxiously been waiting for,” TD economist Diana Petramala wrote in a report.

The rebound has taken longer than expected to arrive. In a special report on Canada’s exports, TD Bank said a lower loonie isn’t enough to juice exports to the U.S., especially since other currencies have also fallen against the rising greenback.

And exchange rates now play a smaller role in trade than they once did, as many Canadian firms meet export demand through foreign subsidiaries, said the report by economist Brian DePratto and economic analyst Nicole Fillier.