Canada posted a smaller-than-expected merchandise trade surplus and a widening services trade deficit in August, which combined to produce the country’s first negative trade balance with the rest of the world this year.
The merchandise trade surplus – goods exports, minus imports – fell to $1.5-billion in August, from $2.4-billion in July, Statistics Canada said Wednesday. Economists were expecting a $3.5-billion surplus. Goods exports declined 2.9 per cent from the previous month, while imports fell 1.7 per cent, a further sign of slowing economic growth in Canada and abroad.
Meanwhile, Canada continued to import more services than it exported in August, leading to a $1.9-billion trade deficit for services that month.
The latest trade numbers arrived the same day the World Trade Organization warned of a sharp slowdown in global trade in the second half of 2022 and into 2023. The WTO said it expects global merchandise trade volumes to grow just 1 per cent next year, down from its previous estimate of 3.4 per cent.
“The picture for 2023 has darkened considerably,” WTO director-general Ngozi Okonjo-Iweala said in a press conference on Wednesday.
“Today, the global economy faces a multipronged crisis. Monetary tightening is weighing on growth across much of the world, including in the United States. In Europe, high energy prices are squeezing households and businesses, and in China, COVID-19 outbreaks continue to disrupt production and ordinary economic life,” she said.
The WTO is the latest organization to warn of a steep drop in global economic activity as a result of aggressive interest-rate hikes and the geopolitical crisis caused by Russia’s invasion of Ukraine. The World Bank said last month that central banks risk triggering a global recession by raising interest rates too much and ignoring “potential spillovers of globally synchronous tightening of policies.”
For much of the year, Canadian trade has benefited from global events that drove up the price of oil and other commodities that Canada exports. But energy prices have retreated in recent months as the world economic growth outlook has dimmed. This spurred the Organization of the Petroleum Exporting Countries to announce plans on Wednesday to slash oil production by two million barrels a day to support prices.
Canada’s energy exports fell 6 per cent in August, driven mostly by a drop in prices. The decline, however, went beyond energy shipments.
Exports fell in seven of 11 product categories, including food products and consumer goods.
The decline in imports was led by a 9.5-per-cent drop in car and light-truck imports, and a 7.4-per-cent decline in engines and other car parts.
“Normally, motor vehicle production in North America rebounds in the month of August after slowing down in July due to planned summer shutdowns, which affects imports. However, since the industry continues to be impacted by supply chain issues, the rebound in production was more modest in August this year,” Statscan said.
Canada imported more services than it exported in August, owing in part to Canadians spending on foreign vacations. Services exports rose 0.3 per cent while imports increased 2.1 per cent. Combining the services trade deficit and the merchandise trade surplus, Canada posted an overall trade deficit with the rest of the world of $369-million – its first negative trade balance since December, 2021.
“Looking ahead, a stabilization in oil prices and prospects for agricultural exports to drive some growth later in the year should see the goods surplus remain modestly in positive territory,” Canadian Imperial Bank of Commerce senior economist Andrew Grantham wrote in a note to clients. “However, with travel still having room to recover and drive a further widening of the services deficit, the overall trade balance could remain in negative territory.”