- Deficit narrows but is still wider than economists forecast
- Real export growth of 0.5% in April falls short of import gain
Canada’s economy may see its biggest contraction since the last recession this quarter, as a report showing lackluster export growth in April adds to the negative impetus from Alberta wildfires last month.
The country’s merchandise trade deficit narrowed to C$2.94 billion ($2.25 billion) from March’s record shortfall, Statistics Canada said Friday from Ottawa. The deficit was wider than the C$2.5 billion forecast of economists in a Bloomberg survey. Export volumes -- a measure that strips out the effect of fluctuating prices -- rose 0.5 percent on the month, less than the 0.8 percent increase in imports, indicating net trade will be a drag on growth, economists said.
“The information we have at hand right now is a clear, sharp downside risk to the economy,” Derek Holt, Scotiabank’s vice-president of economics in Toronto, wrote in a note to clients, saying net trade is on track for a double-digit, quarterly contraction, even before the impact of the Alberta wildfires in May is factored in. “It would be easy to get a quarterly contraction in the economy at a faster pace than any quarter since 2009.”
Friday’s data, along with a disappointing labor report in the U.S., suggests the Bank of Canada may now take a more downbeat view on its outlook for an export-led recovery. Deputy Governor Larry Schembri said Thursday the economy will gradually recover as non-energy exports gain momentum, helped by a stronger U.S. economy and a weaker Canadian dollar.
Yet Canada’s currency rose 1.2 percent Friday at 12:34 p.m. Toronto time, extending the gain this year to 6.9 percent against its U.S. counterpart, which dropped after a Labor Department report showed American employers added the fewest workers in almost six years. The news led traders to trim bets the Federal Reserve would raise interest rates this summer.
Governor Stephen Poloz is due to give a lecture in Ottawa Saturday, with a press conference to follow.
Canada’s April deficit follows the revised March shortfall of C$3.18 billion, a record. Shipments in and out of Canada increased after declining for two straight months. Exports climbed 1.5 percent to C$41.8 billion, not enough to undo the slide from January’s C$46.1 billion. Imports rose 0.9 percent to C$44.7 billion.
Non-energy exports rose 0.8 percent on the month and were up 3.9 percent from April 2015, the Ottawa-based agency said. Schembri predicted non-energy exports will become the main contributor to export growth by the fourth quarter of 2017.
Industrial machinery, equipment and parts exports rose 10.5 percent to C$2.79 billion, the biggest such increase since March 2001. Gains in the metals and minerals category were curbed by a drop in aircraft shipments.
The trade surplus with the U.S. narrowed in April to C$1.57 billion, the lowest since 1993, from C$1.74 billion a month earlier.
The May trade figure could show reduced exports because of the Alberta wildfires that took 1 million barrels of production a day offline. The city of Fort McMurray just started allowing some residents to return this week after more than 80,000 people were evacuated.