The slight 0.2-per-cent rise in exports to $39.1-billion was not enough to match the 2.3-per-cent increase that pushed imports to their highest-ever recorded level of $40.9-billion, leaving Canada with a trade deficit of $1.8-billion in June, compared with $954-million in May, according to data from Statistics Canada on Thursday.
The deficit was “much worse” than expected, said Krishen Rangasamy, a senior economist at National Bank Financial. It is the largest trade shortfall since September 2010 and the third recorded this year following an earlier string of surpluses. The recent retreat in to deficit territory is a sign Canada’s main export markets are experiencing sluggish growth and showing weak demand for Canadian goods.
The strength in Canada’s import levels, however, shows demand in Canada is relatively healthy. In volume terms, imports were up 2.5 per cent, led by machinery and equipment, which also hit a record at $11.2-billion.
Auto exports “saved the day” on the export side, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns. They covered up declines in most other export sectors, increasing 13.9 per cent from May to $6.3-billion.
Falling prices for energy products continued for the fifth consecutive month, pushing the export of energy products down 3.5 per cent to $9-billion.
Canada usually ships about three quarters of all exports each year to the U.S., mainly in oil, gas, uranium and electricity. In June, exports to America rose 2.2 per cent to $29-billion. Imports to the country also rose to a record $25.9-billion, an increase of 3 per cent from May.
Mr. Porter said the trade balance in recent months is likely to shave a percentage point or more from GDP growth in the second quarter, which is currently expected to clock in around 1.8 per cent.
“With June’s data completing the trade picture for the second quarter, net exports will likely have dragged on overall economic growth,” said Francis Fong, an economist at Toronto-Dominion Bank.
“The good news is that commodity prices have bounced since hitting their lows in late June,” Mr. Porter said. “Which should provide some support for Canadian export receipts in coming months.”
The Bank of Canada’s commodity price index is up 10 per cent from June, he noted.
But while this will give support to prices, Mr. Porter said he has low expectations for export volumes given poor economic growth prospects around the world.
“After carving heavily from growth in the first half of 2012, it’s tough to see net exports helping Canadian GDP in the second half,” Mr. Porter said.
In a further reflection of deteriorating demand from economies around the world, British exports recently recorded an 8.4-per-cent drop, and on Wednesday, Germany and Japan also posted weak export results.
Original Article
Source: the globe and mail
Author: Ora Morison
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