Canadian exports have seemingly come back to life, ready to exert some positive pressure on the economy just as Canadians were beginning to wonder whether anything was going to fill the void the energy sector left behind.
Exports surged 6.3 per cent in June, according to Statistics Canada, while imports fell slightly by 0.6 per cent, narrowing Canada's trade deficit sharply to just under $0.5-billion. That's $2.5-billion less than what analysts were expecting, and a spectacular change from the $3.3-billion deficit in May.
It was just a one-month showing, but it was also a clear sign that the weak loonie and stronger U.S. demand has finally stimulated the badly needed export rebound.
"We've seen a run of weak export numbers," said Benjamin Reitzes, senior economist at BMO. "The fact that we can get some traction is encouraging to say the least; it suggests we might finally be approaching the seemingly endless negative data train."
The June reading marks the first increase in exports after five months of consecutive declines and is the biggest gain since December of 2006. The number includes a 7.1-per-cent jump in exports to the United States and 3.8-per-cent growth for all other countries. In total, Canada had $44.6-billion in exports in June.
The growth was also broadly spread across nine of the 11 sectors, led by significant improvements in exports of consumer goods, metal and mineral products, pharmaceuticals and miscellaneous goods and supplies, all the result of higher volumes. In total, volumes were up 4.8 per cent.
"The benefits of a cheaper dollar usually take two to six quarters to trickle through," explained Nick Exarhos, economist at CIBC, on why it took so long for the gains to materialize. "Typically, a 10-per-cent depreciation of the loonie in foreign exchange feeds through to about a 6-per-cent boost in export volumes, given a couple quarters for lag."
The loonie jumped briefly after the release Wednesday morning, though it finished the day slightly down at 75.83. "There are a lot of other factors putting pressure on the dollar," Mr. Reitzes said. "With the oil prices still depressed and uncertainty about the elections, it's going to stay under pressure for some time."
However, observers warn that caution must be placed when looking at numbers from a single month. "Some of the sectors are very volatile, and the factors will compound to lead to a large increase at once," said Nita Boushey, analyst at the international accounts and trade division of Statistics Canada. It's better to look at trends, and so far "Canada is in its ninth consecutive month of deficit, and before that we had eight consecutive surpluses."
These trends have a lot to do with how energy products factor into the export equation, as the sector continues to exert a disproportionate effect on the Canadian economy. Excluding energy products, exports were up 6.9 per cent in June, while energy products increased 3.7 per cent. Prices for energy products were up 4.5 per cent while volumes decreased slightly by 0.7 per cent. The trade deficit for June, not including energy products, would have been $5.7-billion.
The United States also released trade figures Wednesday. It reported a deficit of $43.8-billion (U.S.), around $1-billion more than what analysts were estimating.
Moving forward, Canadian exports will continue to enjoy growth, "but not like what we saw in June," Mr. Reitzes said. "Those were exceptionally strong numbers, and given the strength, I wouldn't be surprised if there was a pullback in July. But there should be modest growth for next 12 to 18 months, and we are expecting a nice positive for GDP in June."