Kevin Carmichael

Wednesday, August 12, 2009

Ottawa — Canadian exports rose for the first time in four months in June, as U.S. demand for oil at surging prices helped to dramatically narrow Canada's trade deficit.

The value of merchandise exports jumped 2.3 per cent to $29.3-billion, halting three consecutive monthly declines, Statistics Canada said Wednesday. Imports dropped 1.3 per cent, leaving Canada's trade deficit at $55-million, compared with a record $1.1-billion in May.

The report suggests Canada is on the cusp of returning to the more comfortable position of generating more cash abroad than leaves the country through the purchase of imports, an equation that would make trade a net contributor to gross domestic product.

Yet Statscan's latest trade data paint a picture of an exporting nation that was struggling to gain traction outside the oil patch in June. A revival is crucial because the Bank of Canada's prediction that Canada's recession will end this quarter is based largely on the prospect of stronger exports.

Exports of energy products rose 14 per cent to $6.4-billion, the result of a 5.1 per cent increase in prices and an 8.4 per cent rise in volumes. Most of the increase in energy – 87 per cent – was attributable to a jump in shipments of crude petroleum to the U.S., Statscan said.

Otherwise, Canada's exporters largely struggled to replenish lost sales. A 6.1-per-cent gain in shipments of industrial goods and materials was mostly the result of higher gold prices, Statscan said.

Only three of nine export groupings posted gains in the month, and without the influence of energy, shipments would have declined 0.5 per cent, Statscan said.

“Net, net, a rather disappointing report that points to a narrowly defined improvement in exports – essentially limited to gold [the metal] and black gold [the oil],” Stewart Hall, an economist at HSBC Securities in Toronto, said in a note to clients. “Anything related to industrial production appears to have remained woefully depressed.”

Canada's exporters remain in a deep hole as the global recession has caused demand for goods to evaporate. June's exports, while higher than the previous month, were 33 per cent lower than a year earlier. Despite the jump in June, the value of energy shipments was 50 per cent lower than a year ago.

Canada ran trade surpluses for more than three decades until exports crashed in December as shipments of oil, automotive products and lumber to the U.S. plunged amid that country's deepest recession since the Great Depression.

Exports of automotive products fell 5.6 per cent in June to $2.9-billion, about one-third of the peak value registered in January, 2000, and forestry exports dropped 0.4 per cent to $1.6-billion, Statscan said.

Imports fell for the fourth consecutive month in June, a signal Canada's domestic economy remains weak. The value of imports was 23 per cent lower than the same month a year ago.

Some economists saw in the latest data signals that the deterioration of Canadian trade had found a bottom.

U.S. demand for oil signals the economy of Canada's biggest trading partner is coming back to life. Declines in exports of metal ores slowed in June, and exports of passenger cars actually gained 3.2 per cent, StatsCan said.

“The bounce in energy exports does not disguise the bigger picture that underlying trade flows have yet to turn,” Doug Porter, an economist at BMO Capital Markets, said in a note. “However, with U.S. activity stabilizing and auto output slowly gearing back up, exports should see a mild revival in the second half of 2009.”

Canada's trade surplus with the U.S. widened to $3.1-billion from $1.7-billion. Canada's trade deficit with the rest of its trading partners expanded to $3.1-billion from $2.8-billion.

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