Canada’s merchandise trade deficit widened in August as exports fell for the third consecutive month, the latest sign that the country’s economic boom of the first half of the year has cooled.
Statistics Canada reported that the country posted a merchandise trade deficit of $3.4-billion in August, compared with $3-billion in July.
The August shortfall was substantially bigger than the $2.6-billion expected by economists, who had thought trade might bounce back somewhat after two weak months in June and July.
The country has now racked up a cumulative deficit of $10.1-billion over the past three months of data – more than triple the deficit of the prior three months – as evidence mounts that the economy lost momentum in the third quarter.
“In case there was any doubt that peak Canadian growth is behind us, this report all but cements the case,” Robert Kavcic, senior economist at Bank of Montreal, said in a research note.
A key for economists was the continued slowdown of exports, which had been a major contributor to the second quarter’s stellar 4.5-per-cent annualized growth pace. Exports fell 1 per cent in the month – their third consecutive decline – despite higher prices, as volumes fell 1.9 per cent.
Since peaking in May, exports have slumped nearly 11 per cent in value, and 6 per cent by volume. The declines came during a period of sharp appreciation of the Canadian dollar, which surged 13 per cent against its U.S. counterpart between early May and early September, making Canadian goods more expensive for foreign buyers.
Imports were also less than impressive in August, coming in flat compared with July, though volumes edged up 0.3 per cent.
Economists said the weaker trend in the trade data supports their expectation that the economy has retreated to a much more moderate growth pace for the second half of the year.
Most have been looking for growth in the range of 2 per cent to 2.5 per cent in the third quarter, although the disappointing August trade numbers suggest that the pace may be closer to the lower end of that range.
However, some economists noted that U.S. demand for Canadian goods may have been slowed somewhat by the impact of the hurricane season that battered the southern United States in late August and early September. They expect that trade numbers will show a rebound in demand as those regions returned to normal business and started to repair the damage inflicted by the storms.
“Fortunately, it appears that the worst could be over for Canadian outbound shipments. Already, figures from the U.S. highlight a rebound from the economic lows reached in the aftermath of the hurricanes,” said Canadian Imperial Bank of Commerce economist Nick Exarhos. “Furthermore, U.S. auto sales have rebounded smartly recently, and the elevated inventory levels that we had highlighted as a threat to Canadian exports have also come down to more normal levels.”
“We continue to expect that a pickup in trade growth globally in recent quarters and signs of life in the U.S. industrial sector will ultimately support a return to a gradual uptrend in Canadian exports going forward, although attention will also be paid to any signs that the … appreciation in the Canadian dollar since early June is eating into Canada’s share of foreign demand,” said Royal Bank of Canada senior economist Nathan Janzen.
At a news conference in Toronto on Wednesday, Finance Minister Bill Morneau said that, despite the string of weak export numbers, Canadian exporters should still be encouraged by Canada’s strong economic trend this year.
“We have seen a really positive trajectory over the past year in terms of our growth. My sense is that we will continue to have a positive economic situation in the coming quarters, and obviously over the longer term,” he said. He added that the recent retreat of the Canadian dollar, which has fallen more than 3 per cent in the past three weeks, “will be helpful for [exporters].”
“So if I’m talking to exporters, I’m going to continue to say that we think there’s positive opportunity for them. The broader economic trends lead me to conclude that we have a positive future.”