Canada’s trade deficit widens in June, but net trade likely to contribute positively to Q2 growth

Canada’s trade deficit broadened in June. The trade balance came in a deficit of CAD 3.6 billion, widening from CAD 1.4 billion in April, as exports dropped 4.3 percent. In the meantime, imports rose 0.3 percent. The decline in exports comes after three months of straight record gains. Declines were mainly widespread, with shipments down in 9 of 11 sectors. Drops in unwrought gold and energy products were the major culprits. On a year-on-year basis, exports rose 12.4 percent.

The disappointment in June exports was partially because of lower prices for several commodities; however, it was not the whole story in June. Volumes of exports also dropped in the month, falling 1.7 percent. On the import side, lower prices also depressed the headline, with import volumes rose 0.8 percent in June. In nominal terms import rises were driven by gold bullion, with imports of metal ores and non-metallic minerals rising 39 percent on the month. Like exports, imports have also accelerated in the past year, consistent with generally better growth in the Canadian economy, and are rising 10.4 percent year-on-year.

Canada’s trade surplus with the U.S. narrowed further to CAD 2.2 billion from CAD 3.5 billion in May, recording the smallest surplus in a year. That was due to lower crude oil exports outweighing a decline in crude oil imports.

In spite of the weakness in June, Canadian net trade is still likely to contribute positively to the nation’s economic growth in the second quarter, noted TD Economics in a research report. The second quarter in Canada is expected to have seen quite a healthy 3.5 percent annualized rate of GDP growth. But growth is on track to decelerate to a much more sustainable rate in the third quarter of below 2 percent, stated TD Economics.