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Falling Exports Signal Canada Economy Slowing

Exports declined 1.9% and have fallen for three consecutive months for the first time since 2011.Exports declined 1.9% and have fallen for three consecutive months for the first time since 2011.

Canada’s trade picture continued to deteriorate in August as exports dropped for a third straight month and the deficit unexpectedly widened.

Exports are suffering one of their biggest tumbles ever over the past three months after touching records. That may fuel concern the nation’s currency has been accelerating too quickly. Canada’s dollar has advanced about 7% over the past six months, Bloomberg reported.

The trade deficit hit $3.4 billion, the fifth-highest on record, from $3 billion a month earlier (estimates were for a $2.6 billion trade gap).

Exports fell 1% and are down 11% since hitting a record in May. Imports were little changed, but are down 6.1% in two months.

The slumping trade performance also means Canada’s expansion is losing a major engine in the second half of the year, reinforcing expectations its growth rate is poised to slow from levels over the past year rarely seen in the past couple of decades. Economists had been anticipating annualized growth of about 2.5% in the third quarter, from 4.5% in the second quarter.

The report reinforces expectations the Bank of Canada—which has been signaling it’s concern about the stronger Canadian dollar—won’t move ahead with another interest rate increase at a rate decision later this month.

The Canadian dollar dropped 0.5% to C$1.254 per US dollar in Toronto, and is down 3.4% since touching a two-year high on Sept. 11. Swaps trading suggests investors are pricing in less than a 20% chance of a rate increase at the Bank of Canada’s Oct. 25 decision.

  Other Details

- In volume terms, exports declined 1.9% and have fallen for three consecutive months for the first time since 2011. Real imports fell 0.2%

- Non-energy exports are down for the third month in a row, dropping 2.8% from a year earlier

- Auto plant shutdowns that have been longer than usual continue to play a role, with shipments of motor vehicles down 0.5%

- It’s only the second time in the last three decades that exports have declined by more than 10% in three months outside of a recession

- Energy products, precious metals, and motor vehicle exports—in that order—are the three biggest drivers of the three-month slump

Electronic and electrical equipment exports (2.5%) and energy production (1.5%) led gainers in August.

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