OTTAWA: Canada’s global trade deficit reached a record high of $2.7 billion in July—up from $1.8 billion in the previous month—due to a weakening US recovery and a strong Canadian dollar, according to Statistics Canada.
Exports to the US fell 2.2 per cent in July, while imports grew by 2.9 per cent, narrowing Canada’s trade surplus south of the border to $1.2 billion from $2.4 billion in June.
The agency reported that merchandise exports dropped 0.7 per cent in July as volumes declined in most other sectors, while Canada’s imports increased.
“Without the demand from the US, our manufacturing sector will suffer given that many export a significant amount of their products to the US,” says Francis Fong, economist for TD Bank Financial Group.
The report also indicated that export prices also edged down 0.2 per cent during that month, with machinery and equipment, other consumer goods and forestry products leading the decrease. An increase in industrial goods and material exports moderated the decline.
But Fong suggests Canada is in a unique situation compared to past recession recoveries and the lack of economic movement in the US will not necessarily impact Canadian investment into new technology and machinery to keep their competitive edge.
“In the case of the 80s and 90s recessions, Canada had export-led recoveries, meaning they had to wait for the US to come out of their recession before our exports recovered,” says Fong. “This time it’s different. We’ve had a one-of-a-kind domestically led recovery and now corporations and businesses in Canada are in a really unique position.”
Fong adds that corporate profits are on the mend, and low interest rate and tax incentives are helping businesses invest.
“There are many incentives that support business investment,” says Fong. “At this point we have to look at the labour market. Canadian job growth has been extremely strong. We lost almost 417,000 jobs over the course of the recession and we’ve almost recovered all of those. I suspect that by tomorrow when the employment data come out that we’ll have hit pre-recession levels.”
Unlike the US, which lost more than 8 million jobs and has a growing population of new workers seeking employment, Fong says that Canadian businesses have been hiring, the profits exist, we have the labour and we need to start building up the capital to improve productivity.
However, Canada may have to look at other markets to improve sales.