OTTAWA - Canada's trade surplus shrank sharply in February on surprisingly weak exports of autos and energy, posing a downward risk for economic growth this quarter.
Statistics Canada reported Thursday that the surplus fell to $292 million from January's negatively revised $1.9 billion, mostly due to a 3.9 per cent setback in exports to $39.6 billion.
The picture was not much better in terms of real volume of shipments, which showed exports fell 3.5 per cent.
"This is the second consecutive monthly decline in the volume of exports, so the trade impact on quarter one GDP (gross domestic product) growth is tracking negatively," said Derek Holt, vice-president of economics for Scotia Capital.
Still, analysts expect export trade will be a net positive for the first three months of this year — although less than previously expected — due to the strong hand-off from the end of 2011.
Analysts have been looking for modest expansion in the first quarter of just under two per cent, but Bank of Canada governor Mark Carney recently suggested that call may be revised upwards in next week's monetary policy review.
Other data has been mixed. Employment, in particular has gone from flat readings in January and February to a massive job creation number — 82,300 — in March, the last month of the quarter.
With consumers highly indebted, economists have been looking to exports and business investment in machinery and equipment to support the recovery.
February disappointed on both fronts.
Imports increased 0.2 per cent to $39.3 billion. Imports of machinery and equipment declined 2.1 per cent, however.
But analysts took the report with a grain of salt, saying the evidence points to February's performance being the result of unusual circumstances that are unlikely to repeat.
Export Development Canada economist Peter Hall said he was not concerned with the drop in exports.
Shipments of autos and related products plunged 11.9 per cent, while energy products fell 6.9 per cent as crude exports were down 6.4 per cent despite stronger global prices.
"I don't think we have too much to worry about here," Hall said.
"A warm winter in the United States is basically what is going on and we're walking into a driving season. So energy is going to pick up."
"On autos, I scratch my head a little bit," Hall added. "But the U.S. sales levels are well up in March and production forecasts are still up at double-digit sales. This is a breather."
TD Bank economist Dina Cover agreed, saying despite the challenges of the strong dollar, shipments to the United States — Canada's number one customer — will likely improve along with the U.S. economy.
David Madani of Capital Economics added: "This improvement should help to support better export growth in the months ahead and we still think that net exports are on track to contribute positively to GDP in 2012."
However, there appears to be a limit on the extent to which exports can contribute going forward, given the ongoing difficulties in Europe and moderating growth even in emerging economies such as China.
The World Trade Organization said Thursday it expects growth in global exports to slow to 3.7 per cent in 2012, from five per cent in 2011 and 13.8 per cent in 2010, when the world was emerging from recession.
In February, the trade surplus with the United States fell to $4.8 billion from $6.1 billion as exports fell 3.8 per cent to $29.3 billion.
Exports to countries other than the United States fell four per cent to $10.3 billion as the country's trade deficit with the rest of the world rose to $4.5 billion from $4.1 billion in January.
An unrelated report from the Conference Board gave more evidence of the slow growth economy. The think-tank said its leading indicator of corporate profitability remained flat in March, virtually unchanged from where it stood in November.
Here are a few details of the major investment deal coming soon between Canada and China, as well as a list of what CBC chief political correspondent Terry Milewski calls a "small blizzard of incremental agreements," signed in Beijing. <em>With files from CBC</em>. (Diego Azubel-PoolGetty Images)
Prime Minister Stephen Harper called the foreign investment promotion and protection agreement (FIPA) between Canada and China the first "comprehensive economic agreement" between the two countries. In fact, what was signed by Harper and Chinese Premier Wen Jaibao in Beijing is not the final deal, but a declaration of intent: Now it must be legally reviewed and ratified by both governments, which for Canada will mean a debate in the House of Commons. Once both countries complete this process, it will need to be formally signed to take effect. This deal will protect Canadians investing in China, as well as Chinese investors in Canada, from "discriminatory and arbitrary practices." Once in place, investors can have more confidence that rules will be enforced and valuable business deals will be subject to predictable legal practices. Harper told reporters in Beijing he "absolutely" expected that it will make a "practical difference." "The agreement does not override existing Canadian law in regard to foreign investment and foreign investment review," Harper said. "Those laws remain in place." Negotiations for this agreement took 18 years, and key players in manufacturing, mining and the financial sectors were consulted to get to this stage. It's not unusual for Canada to have this kind of an agreement with a trading partner. FIPAs are in force with 24 other countries that trade with Canada, and active negotiations are underway with 10 other countries, according to the government's announcement. (Diego Azubel-PoolGetty Images)
(AP Photo/Valentina Petrova)
- A new protocol, building on a 2010 agreement to restore Canada's market access to the Chinese market for Canadian beef following the 2003 BSE outbreak and resulting border closures, to allow industrial beef tallow (fat) to be imported for the first time in almost a decade. China used to be Canada's top export market for tallow ($31 million in 2002), and now Canada has a shot at a share of the $400 million in tallow China imports from around the world. - A memorandum of understanding (MOU) on canola research, to address a recent fungal disease in canola and rapeseed that threatens Canada's valuable trading relationship with China in canola. - On Tuesday, Chinese aquaculture feed company Tongwei announced it will increase its purchase of Canadian canola by up to $240 million per year by 2015. (DAVID BUSTON/AFP/Getty Images)
- A MOU between Natural Resources Canada and the Chinese Academy of Sciences to collaborate on scientific research on sustainable development of natural resources. The government release touts benefits including new technologies for resource firms, carbon emissions reduction strategies, reduced environmental impacts and natural hazards from resource development, and new opportunities for Canadian suppliers of equipment and services. - A MOU spelling out a "framework" for Parks Canada and China's state forestry administration to collaborate and share scientific expertise in the management of national parks, natural reserves and other protected areas. The agreement includes language around ecological restoration, conservation measures for endangered wildlife, wetlands development, and the preservation of forests and wetlands. (<a href="http://www.flickr.com/photos/47096398@N08/" target="_hplink">Flickr: eleephotography</a>)
- A continuation of the MOU, first signed in 2001 and renewed in 2006, on energy co-operation to "engage China on energy issues" through a Canada-China joint working group on energy co-operation, chaired by Natural Resources Canada and China's national energy administration, which is responsible for Chinese energy policy. The working group oversees joint research projects, exchange of expertise, and co-operation between energy companies in both countries, including the promotion of energy efficiency and renewables. It aims to both attract capital investment and improve market access for Canadian energy resources and technology. (MARK RALSTON/AFP/Getty Images)
- Approval of seven projects, valued at $10 million, under the Canada-China framework for co-operation on science and technology and innovation, including: a diagnostic kit for acute kidney injuries, a wind energy seawater desalination system, a waste heat-recovery system to help oil refineries consume less fuel, new solar cells for renewable energy panels, a real-time multi-sensor navigational tracking device for hand-held devices, a blue-green algae bloom warning system and "next generation" large-scale geographic information systems. - Two more calls for proposals, valued at $18 million ($9 million from each country) for joint research under the same framework. These proposals are for the development of "innovations with high commercial potential" in the areas of human vaccines and clean automotive transportation. The Canada-China joint committee on science and technology, made up of individuals from industry, academia and government, sets the priorities and oversees these projects. (To date, 21 projects ranging from nuclear power to AIDS drugs, to clean technologies for pulp and paper have received some $28 million in funding.) (TOSHIFUMI KITAMURA/AFP/Getty Images)
- A renewed MOU extending and modifying the Canada-China scholars' exchange program, which has seen 900 students travel between Canada and China since 1973. New eligibility rules and scholarships will be in place for the next round of competitions in 2012, including eight to 12 Canadian scholarships for Chinese professionals and 20 awards for Canadian university students. (<a href="http://www.flickr.com/photos/plutor/" target="_hplink">Flickr: Plutor</a>)