Weaker Canada exports to weigh on second quarter growth

Canada’s merchandise trade balance recorded its second consecutive monthly deficit on falling exports.

The country posted a C$3.7 billion ($2.7 billion) trade deficit in June — the largest since October 2020 — from an upwardly revised C$2.7 billion deficit in May, Statistics Canada reported Tuesday in Ottawa. 

Economists had been expecting imports to exceed exports by C$2.8 billion in June.

Total exports were down 2.2% that month, while imports decreased 0.5%. Stripping away the impact of prices, Canada exports fell 1.1%, while imports were up 0.9%.

The data provide further evidence that exports, which spurred output growth in the first three months of this year along with household spending, will end up a drag on the economy in the second quarter.

“This will leave overall growth increasingly reliant on domestic demand, and in particular consumer spending, the resilience of which appears to be slowly cracking under the pressure of higher interest rates,” Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a note to investors.

During the period from April to June, exports fell 0.4% in real terms, while real imports were up 0.9%.

Faltering economic momentum at the end of the second quarter also points to a “weak handoff” to start the third, Shelly Kaushik, an economist at Bank of Montreal, said in a report to investors. 

The statistics agency said it expects a recent port strike in British Columbia and severe flooding in Nova Scotia to disrupt merchandise trade activity in July. Those numbers will be available on Sept. 6.

Last year, 9.2% of Canada’s total exports by value were shipped though through British Columbia via marine transportation. Over half of exports were resource-based goods, ranging from coal and potash to wheat, canola and pulp. For imports, 5% of the total value was cleared by these ports, with goods including finished consumer products and intermediate goods used in various industries.

During the same period, the Halifax port handled 1.4% of Canada’s total merchandise import value, and 0.8% of total exports. June flooding damaged rail lines, affecting goods traveling inland from the port.