Canada’s trade deficit widened more than expected in August as imports soared to a record high, suggesting that exports were still not providing the much-desired boost to economic growth in the third quarter.
The trade deficit climbed to $1.31-billion as imports grew by 2.1 per cent to set a new record and exports rose by 1.8 per cent, Statistics Canada said on Tuesday.
The deficit – the 20th in a row – exceeded analysts’ forecast of a $700-million shortfall. Statscan revised July’s deficit to $1.19-billion from an initial $931-million.
“The Canadian economy is still waiting for that growth rotation into exports,” said Doug Porter, chief economist at BMO Capital Markets.
“And, given the U.S. government shutdown and the deepening uncertainty over the fast-approaching debt ceiling limit, no one is holding their breath in anticipation of a quick revival on that front,” he said.
Consumers and a housing boom have provided most of the muscle in Canada’s economic growth since the 2008-09 recession but policymakers see that as unsustainable and are watching for signs the private sector is taking the lead through greater exports and investment.
A silver lining in Tuesday’s trade report was that in volume terms exports and imports rose by 1.5 per cent and 1.7 per cent, respectively, which will help the monthly gross domestic product figures.
But economists said the weak export performance could shave one percentage point off annualized growth in the third quarter. Scotiabank economists Derek Holt and Dov Zigler said exports were down 4.4 per cent on a seasonally adjusted annual rate in the first two months of the quarter while imports gained 2.7 per cent.
“We have to see how September shapes up, but thus far, trade is looking to be a considerable drag on growth,” they said in a note to clients.
The Bank of Canada sharply cut its third-quarter growth forecast in a speech on Oct. 1. Senior Deputy Governor Tiff Macklem said annualized growth in the third and fourth quarters would be in the 2 to 2.5 per cent range. In its July forecasts, the bank had predicted 3.8 per cent and 2.5 per cent growth in the third and fourth quarters.
Imports in August hit $41.08-billion on higher shipments of energy products, aircraft and motor vehicles as volumes rose 1.2 per cent and prices increased by 0.9 per cent. The previous high was the $40.89-billion recorded in April 2013.
Exports advanced on higher shipments of energy products and mineral products. Volumes grew by 1.4 per cent and prices edged up by 0.4 per cent.
Exports to the United States, which comprised 75.7 per cent of all Canadian exports in August, grew by 1.9 per cent while imports rose by a mere 0.1 per cent. As a result the trade surplus with the United States grew to $3.99-billion from $3.44-billion in July.
The cumulative trade deficit for the first eight months of the year was $6.98-billion, the second highest January-August shortfall on record after the $9.14-billion posted in 2012.