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Shipping containers are shown at the Port of Montreal in Montreal on Aug. 23, 2020.Graham Hughes/The Canadian Press

Canada’s international trade growth stalled in August, the latest evidence that the economy is shifting into a slower phase after its torrid rebound from the COVID-19 shutdowns.

Statistics Canada reported Tuesday that merchandise exports dipped 1 per cent in August, snapping a three-month surge as Canadian and global markets reopened from widespread pandemic lockdowns. The high-speed recovery of imports similarly stalled, slipping 1.2 per cent in the month.

Canada’s merchandise trade deficit – the difference between imports and exports – narrowed slightly to $2.45-billion from a revised $2.53-billion in July.

The declines were in contrast to the massive gains in total goods trade of 20 per cent in June and another 11 per cent in July, when economic activity was rapidly returning in foreign markets and Canadian goods producers were ramping up their operations.

“Canada traded less with the rest of the world in August, a surprising development that doesn’t bode well for the pace of recovery,” Canadian Imperial Bank of Commerce senior economist Royce Mendes said in a research report. “While some that could be chalked up to volatility, weakness in the numbers still looked widespread enough to be disappointing.”

The trade report adds to other recent indicators that suggest that the post-lockdown snap-back had lost momentum by late summer – even before the recent resurgence in COVID-19 cases – with the economy still operating well below its pre-pandemic pace. After the August pullback, total goods trade is about 6 per cent short of its pre-crisis level.

Trade in services – which has been slower to recover from the pandemic lows than goods trade – made modest gains in August, with exports up 0.9 per cent and imports up 1.3 per cent. But services trade is still a massive 27-per-cent below its pre-COVID levels, as one of its key components, travel and tourism, remains crippled by heavy cross-border restrictions.

As in other recent months, the trade data were heavily influenced by the auto sector, which was idled by massive closures during the COVID peak in the spring, then spent months playing catch-up after restarting production. Exports of motor vehicles and parts were down nearly 7 per cent in August.

Economists noted that automakers cranked up production in July, a month when they traditionally shut down large portions of their operations for summer maintenance. They noted that since the monthly trade figures are statistically adjusted to account for normal seasonal variations, the unusual pattern of auto production over the summer has created some distortions in the month-to-month data.

The often-volatile segment for aircraft and other transportation equipment slumped nearly 15 per cent in the month, mainly due to a sharp drop in shipments under Canada’s military contract with Saudi Arabia, Statscan said. The agency added that normal export flows were somewhat disrupted by a two-week strike at the Port of Montreal, although other ports picked up some of the slack.

Still, the August export slowdown wasn’t narrowly confined: Six of 11 industries posted declines in the month, including metal and mineral products (down 2.2 per cent), consumer goods (down 1.1 per cent), and industrial machinery and equipment (down 1 per cent).

Similarly, six of 11 import segments slowed in the month, led by a 25-per-cent slump in aircraft and transportation equipment. Imports of industrial machinery and equipment – a key indicator of business investment – fell 4.4 per cent.

“Stripping away monthly noise, the release is consistent with our view that as the economy enters the ‘recuperation’ stage, activity will moderate,” Toronto-Dominion Bank economist Omar Abdelrahman said in a research note. “The reversal in export gains speaks to the still highly uncertain backdrop surrounding exports and business investment.”

With August trade weighed down by several one-off factors, economists said Canadian trade numbers could be in for more gains – albeit more modest ones than earlier in the recovery. Stephen Brown, senior Canada economist at Capital Economics, points to solid weekly rail-freight data in September as an indication that shipments picked up again last month.

But with much of the post-lockdown recovery now behind us, economists cautioned that the outlook for trade gains is clouded by the limitations and the uncertainty posed by the pandemic.

“We continue to receive mixed signals on the outlook for exports in the near term,” Mr. Abdelrahman said. “Strong manufacturing sentiment readings in Canada, the U.S. and China in September point to continued growth in trade. At the same time, services exports are expected to remain far below their pre-pandemic levels until a vaccine [or] treatment become widely available.”

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