OTTAWA - Canada's trade performance with the rest of the world worsened for the third consecutive month in June, providing fresh evidence of the global economic slowdown's impact on the country's key sector.
Statistics Canada reported Thursday the merchandise trade deficit nearly doubled to $1.8 billion during the month, from an upwardly revised $954 million in May.
It was the third consecutive report showing a widening gap and represented the worst monthly deficit in almost two years.
Although the bottom line was nearly twice economists' expectations, analysts noted the picture was not as dark as the bottom line suggests as the deficit was entirely on the import side, which saw a 2.3 per cent gain.
Exports were mildly positive, growing 0.2 per cent, and were even stronger in volume terms, rising 1.1 per cent, as soft oil prices cut into the return on shipments. However, all the gain came from one sector — autos — which stamped out a five-year best 13.9 per cent increase in June.
Some economists took comfort in the increase in export volumes, saying it suggests the economy is holding up well in the face of stiff winds from the rest of the world. Even the imports bump could point to increased domestic activity, said David Madani of Capital Economics.
They were also encouraged by the record high level of imports of machinery and equipment at $11.2 billion, reflecting a long-awaited ramp up of business investment that could pay dividends down the road in improved competitiveness.
Still, Bank of Montreal economist Doug Porter said it was difficult to see trade as anything but a negative this quarter and going forward.
For the three-month period ending June, Canada's trade deficit totalled $3.3 billion, versus a $2.2 surplus in the first quarter.
"Net trade will likely cut roughly 1.5 percentage points from GDP (gross domestic product) growth in Q2, prompting us to shave our Q2 estimate of growth by a tenth to 1.7 per cent," he said.
"The good news is that commodity prices have bounced since from their late-June lows .... which should provide some support for Canadian export receipts in coming months." That is if volumes hold up, he added.
Other economic indicators Thursday also gave a mixed picture for economic prospects.
New home starts in Canada fell to 208,500 units in July, from 222,100 the previous month, but remained in healthy territory, as home prices rose 0.2 per cent in June.
South of the border, the U.S. printed its lowest trade deficit in 18 months, a good indicator for Canada, which exports three-quarters of its goods into the world's largest market.
In an interview with the BBC aired Thursday, Bank of Canada governor Mark Carney said there is already evidence the global slowdown and European crisis in affecting Canada, particularly on the exports front.
"It's had a knock-on effect, commodity prices are down fairly sharply, about 15 per cent over the course of the last several months," he said. "There's is an adjustment and fairly synchronized deceleration of the global economy at the moment."
In June, exports totalled $39.1 billion. Imports hit a record high of $40.9 billion, with six of seven sectors registering gains, the main contributor being the machinery and equipment sector.
Imports from the United States grew 3.0 per cent to a record high of $25.9 billion, the third monthly increase in a row, while exports rose 2.2 per cent to $29.0 billion.
Meanwhile, imports from countries other than the U.S. increased 1.1 per cent to $15.0 billion, while exports fell for the third consecutive month, down 5.2 per cent to $10.1 billion in June.
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)
The Big One: FIPA
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)
The 'Blizzard' (By Sector):
(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)
Science and Technology
- 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>)