The weakening global economy is bad news for Canadian trade, and when the latest statistics are released Thursday they are likely to show the country’s trade deficit getting worse.
Canada started the year with a promising trade surplus, buoyed by rising oil prices. But the months of April, May and June have seen a persistent, and growing, deficit, with imports outstripping exports.
Economists estimate the trade deficit will cut three or four percentage points off overall economic growth in the second quarter. While the Bank of Canada predicts overall gross domestic product growth of 1.5 per cent in April-June period, other forecasts see less than 1 per cent.
With oil prices declining and last week’s harrowing stock market swoon highlighting the uncertain economic picture, the outlook for commodity-driven Canadian trade is darkening.
“The global economy is losing momentum,” said David Madani of Capital Economics in Toronto. “What we’re seeing in the financial markets is a reflection of that reality.”
Capital Economics, like some other firms, forecasts lower commodity prices, which will cut into the value of Canadian exports such as oil and coal. Though it doesn’t believe the United States will suffer a double-dip recession, the trade picture is likely to remain difficult for some time because of persistent weakness in the U.S. economy as consumers and governments battle with debt.
“In a world that’s deleveraging, economic growth is hard to come by,” Mr. Madani said. “Markets are coming to that cold hard reality.”
U.S. trade stats are also due Thursday. A deficit of $48-billion (U.S.) is predicted by economists for June, an improvement from May as the lower U.S. dollar helps lower prices for American goods abroad. (China, on Wednesday, is expected to report a $27-billion trade surplus for June.)
The negative outlook for Canadian trade is exacerbated by several factors. A strong Canadian dollar is helping the import picture but hurts the situation for exporters. But falling oil prices are the single biggest negative. After climbing from last September through April to about $115 a barrel, oil steadily slid before spiking lower in the past week, alongside equity markets.
Oil exports in 2010 were $52-billion (Canadian), the country’s biggest single product, accounting for one-eighth of all of Canada’s merchandise trade exports. The commodity exceeds the value of all of Canada’s exports to the United Kingdom, China, Japan, Mexico and Germany, the country’s five largest trading partners after the U.S.
Even as oil slips, Canadian trade fits into the theme of a split between the economy in Western Canada compared with the East.
At Port Metro Vancouver, Canada’s busiest trading hub, new statistics highlight that strong export picture, bolstered by gains in commodities such as lumber from British Columbia and Saskatchewan potash to Asia.
At facilities on the Burrard Inlet in Vancouver and elsewhere in the Lower Mainland, activity is as busy as ever. Container traffic is set to reach another record this year, led by a 12-per-cent gain in full boxes carrying Canadian exports (compared with a 1-per-cent gain in imported containers).
Cargo stats, measured by tonnage, show exports up 2 per cent and imports down 4 per cent.
“We’re seeing the East-West difference of the economy in Canada,” said Robin Silvester, chief executive officer of Port Metro Vancouver, which is seeking to expand and sees strong long-term positive trends.
“We’re much more bullish than you would infer from the stock market.”