Canada: Trade deficit widened sharply in June but details better – RBC Economics

Canada’s $3.6 billion June deficit is much larger than expected and within spitting distance of the record $4.3 billion shortfall posted in September 2016, according to Nathan Janzen, Senior Economist at RBC Economics. 

Key Quotes

“Nonetheless, as is often the case with the volatile (and revision prone) trade data, details were significantly ‘less-weak’ than the headline would suggest.  Much of the plunge in exports was concentrated in a price-related 9% decline in energy exports and a 15% decline in metal and non-metallic mineral products.  The latter reflected an unwind of a large increase in May that Statistics Canada attributed to  increased gold transfers in the banking sector.”

“Export volumes also declined by a sizeable 2.4% but that only partially retraced a 2.6% jump the prior month.  They remain up 7.0% from a year ago, in part reflecting higher energy shipments but also a 4% year-over-year increase in non-energy exports.  Perhaps the most encouraging silver-lining in the report was a sizeable increase in machinery imports — both industrial and electrical equipment import volumes rose in the month were up more than 9% from a year ago.  Higher machinery imports mean a larger trade deficit but also suggest that the nascent recovery in business investment that began in Q1 of this year has encouragingly persisted through Q2.  Although the deterioration in the headline trade-deficit is eye-catching, there should be enough in the details to allow the Bank of Canada to look through near-term volatility and remain confident that above potential growth is being sustained.” 

“Highlights:

• Canada’s merchandise trade deficit unexpectedly deteriorated sharply to a $3.6 billion deficit in June.
• Exports declined 4.3% but with about half the drop due to lower prices.  
• Export volumes declined 2.4% but were still up 7.0% from a year ago.
• Imports volumes rose 1.1%— boosted encouragingly by 3% gains in both industrial and electronic machinery and equipment purchases.”