Export Instant Insight
Export Instant Insight - No June Surprises - August 12, 2008
Canada's merchandise trade surplus increased almost $550 million in June, up from $5.22 billion to $5.76 billion—close to the consensus estimate of $5.8 billion. The value of merchandise exports to the world increased 3.1% m/m, following a downward revised 4.3% m/m advance in May. Higher energy prices explained most of the gain in exports revenues, boosting Canada’s trade surplus with the United States. Exports to other countries actually declined, with the exception of exports to other OECD countries. Consequently, Canada’s trade deficit with most other countries widened.
Higher export prices (mostly energy prices) accounted for the monthly increase in merchandise exports. After adjusting for movements in export prices though, export shipments (or volumes) actually declined 1.4% m/m—the seventh monthly decline in the previous ten months. On a sector basis, there were no major surprises in the month. Export shipments of forestry and machinery and equipment were down. Energy and industrial shipments were up slightly. Somewhat surprising though were exports of automotive and consumer products, which both posted stronger shipments in June—yet they remain down substantially on a year-to-date basis.
Thus far higher energy prices have helped to buffer the value of Canadian exports to the US, partially offsetting weakness in revenues from other important sectors such as forestry, automotive and machinery and equipment. With an average of almost USD 140 per barrel in June, the price of crude oil has gained a whopping 44% compared to January, boosting crude petroleum exports by a similar amount on a year-to-date basis. In addition, higher natural gas and coal prices have supported gains in the value of energy exports. In fact, lumped together, these other energy exports are up almost 30% year-to-date.
Forestry shipments reverted back to their downward trend in June, erasing the bounce in the previous month. Shipments of lumber and sawmill products fell almost 5% m/m and are down 26% compared to a year ago. Export shipments of machinery and equipment declined a whopping 7.6% m/m, with weakness evident across all equipment components. These monthly export declines were reinforced by small losses in the agri-food sector, particularly wheat, food and beverage and other meat products.
Since the month of June we have witnessed a substantial retreat in crude oil and other commodity prices. While physical demand for crude oil has eased somewhat, money has also been flowing out of the crude futures market. Interestingly, the price of gold has also fallen substantially and is trading around USD 830 per ounce. These developments are strong indications of markets increasingly concerned about the global economic growth outlook and less concerned regarding inflation. Indeed, beyond the US economic downturn, there is now clear evidence of substantially weaker growth in Western Europe, Japan and the UK. Fast-growing emerging markets have also slowed and will continue to ease as their external markets soften, activity reinforced by central bank monetary policy tightening. Looking ahead, we expect global economic activity to slow further while money continues to flow out of crude futures and into other financial asset markets.
Canada’s net export performance likely subtracted from real GDP growth in the second quarter (which we forecast at 0.8% annualized growth). Looking forward, against the existing backdrop of US economic and financial weakness, clear signs of softening growth in Western Europe, Japan, UK and elsewhere in the developing world bodes poorly for Canada’s export outlook.
For details contact David Madani, Economist, Economic Analysis and Forecasting Department, EDC. Phone: (613) 598-3841. Email: dmadani@edc.ca
