Higher oil prices lead to lower merchandise trade deficit

The surprise reduction in the trade deficit because of higher oil prices actually masked more negative news for the Canadian economy

Mario Toneguzzi: Higher oil prices lead to lower merchandise trade deficitCanada’s merchandise trade deficit with the world narrowed from $743 million in June to $114 million in July, the smallest deficit since the most recent surplus in December 2016, says Statistics Canada.

The federal agency said on Wednesday that total exports rose 0.8 per cent, mainly on higher crude oil prices, while total imports declined 0.4 per cent, due to fewer aircraft imports.

Exports rose to a record $51.3 billion, despite declines in six of 11 product sections, it said.

“Exports of energy products rose 5.0 per cent to $10.3 billion, the highest level since September 2014. Crude oil exports (+7.0 per cent) were responsible for the increase in July, with prices rising 9.4 per cent and volumes falling 2.2 per cent,” explained StatsCan. “Crude oil exports have more than doubled over the past two years, and July marked the fifth consecutive monthly increase.”

Benjamin Reitzes, an economist with  BMO Capital Markets, said that after a solid second quarter, net trade had a decent start to the current quarter, “though the drop in export and import volumes doesn’t bode well for broader activity in the month.”

“Even with the better trade report, we’ll stick with our call for GDP growth to slow sharply in Q3 after the perky 2.9 per cent in Q2,” he said.

Royce Mendes, an economist with CIBC Economics, said a surprise reduction in the trade deficit actually masked what were not so great details in the report.

“All of the strength in exports came from higher prices, particularly energy prices, leaving real exports down on the month. Import volumes tracked the nominal series lower, but that looks like it’s at least partially due to another drop in the volatile aircraft category (-16 per cent). Tariffs also added a wrinkle to this report. Canada’s retaliatory tariffs saw imports of products on that list see a sharp dropoff, though they were also only one part of the reason inbound shipments declined in July with seven of 11 categories moving lower.  Overall, the positive headline reading masks what is actually looking like a slow start to the quarter for trade,” he said.

Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.

Higher oil prices lead to lower merchandise trade deficit

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