Muscular dollar cuts into trade surplus
Eric Beauchesne, CanWest News Service
Published: Saturday, June 10, 2006OTTAWA -- The strong dollar, which surged more than a full cent Friday, is cutting into exports while boosting imports and shrinking the country's trade surplus, the latest monthly trade figures suggest.
"Merchandise exports fell in April for the third time in four months this year while imports continued to gain ground," Statistics Canada reported. "As a result, the nation's merchandise trade surplus with the rest of the world dropped to its lowest level in six months."
The survey, released shortly after Statistics Canada put out a stunningly strong employment report, will serve as a reminder that the economy is not firing on all cylinders, and that the strong loonie is carving into net export volumes, said BMO Nesbitt Burns economist Douglas Porter.
"However, the employment report is more timely and suggests that domestic demand is rolling and strong enough to offset the weakness in export-related industries," he added.
The loonie soared above the 90-cents US level following the release of the two reports Friday, closing up 1.33 cents to 90.45.
The trade report comes only a day after a warning by International Trade Minister David Emerson that Canada cannot depend on strong commodity prices to continue bolstering its export performance and must deepen its trade links with the U.S. and widen them with Asian nations.
"We have to acknowledge that our recent stellar performance is significantly underwritten by strong commodity markets especially in energy and that history reminds us how booms inevitably fade or turn to busts," Emerson said. "It's very important that we not wait until we hit the wall."
Ted Carmichael, economist with J.P. Morgan, warned that slumping exports will act as a drag on overall economic growth.
After a modest gain in March, this year's decline in exports resumed, sliding 2.3 per cent to $37.1 billion, while imports rose 1.2 per cent to $33.1 billion, the second consecutive monthly increase, Statistics Canada said. The combination of sliding exports and rising imports eroded the trade surplus to a six-month low of $4 billion from $5.3 billion in March.
Exports, which fell to almost all of Canada's major trading partners, including the U.S., were down 8.4 per cent from last December, the agency said, noting that this year's slump follows a sharply rising trend that began in November 2004.
Imports from the U.S. remained virtually flat in April, while exports declined 1.5 per cent, narrowing Canada's surplus with its main trading partner to $7.9 billion from $8.3 billion. However, that did little for the U.S. which reported that its overall trade deficit increased to $53.4 billion US, reflecting both Increases in energy prices plus rising imports from China, which is challenging Canada's historical position as the largest U.S. trading partner.
Canada's deficit with other countries increased to $3.8 billion from $3 billion.
The weakness in exports was widespread, with only two of seven sectors energy products and agricultural and fishing products showing gains.
An 8.4 per cent plunge in exports of auto products led the slump, which reflects the dampening impact of higher fuel costs and interest rates on demand for vehicles in the U.S., Statistics Canada said. Exports of machinery and equipment, Canada's largest export sector, also fell 3.2 per cent.
Meanwhile, larger purchases of energy products were behind most of the increase in imports, it said.
