Canadian exports continue to expand in face of strong loonie, but so do imports

<p>OTTAWA – Canada’s trade surplus almost doubled in March from the previous month, suggesting the pull from the global recovery was stronger than the drag from a strong loonie.</p> <p>Statistics Canada said the value of Canadian exports outpaced imports by $627 million during March, up from a revised $356-million surplus in February – more than 10 times bigger than the $33-million surplus originally reported.</p> <p>Trade with United States was the main reason for the March surplus, as is usually the case, but the month-to-month improvement was due to trade with other countries. </p> <p>The trade surplus with the United States narrowed to $4.8 billion in March from $5 billion the previous month. The trade deficit with countries other than the U.S. declined to $4.2 billion from $4.7 billion in February.</p> <p>Some of the improved trade surplus is due to the impact of the strong loonie and rising commodity prices, but exports increased by 2.5 per cent in real terms as well in March, continuing a trend.</p> <p>Canadian export volumes have now increased an impressive 12.4 per cent annualized in the first three months of 2011, following a 16 per cent surge in the final quarter of last year.</p> <p>All this in the face of a dollar that has risen to well above parity with the U.S. currency. The Canadian dollar closed Wednesday above US$1.04.</p> <p>”With export prices rising, and two-way trade surging, March posted the kind of trade surplus that bulls on the Canadian economy were hoping for,” said Emanuella Enenajor, an economist with CIBC World Markets.</p> <p>The result was better than economists had expected and suggests exporters are making inroads in foreign markets despite the disadvantage of a loonie trading above par, said economist Benjamin Reitzes of BMO Capital Markets.</p> <p>”Overall, the rebound in international trade activity is very encouraging after real (gross domestic product) contracted in February,” Reitzes said.</p> <p>But even the February dip in GDP might not have been as pronounced as first reported.</p> <p>TD Bank economist Leslie Preston pointed out that the February trade surplus was about 10 times bigger than initially reported at a slim $33 million. In any case. February’s swoon doesn’t appear to have been sustained, she said.</p> <p>”In terms of first-quarter growth, I would say this (Wednesday’s) report was very good,” she said.</p> <p>”I think you see the effect of the dollar mostly in imports because import prices declined 0.4 per cent in March,” she added.</p> <p>Export Development Canada chief economist Peter Hall said high global demand is overcoming the loonie drag, but warns firms won’t be able to buck the impact for long.</p> <p>”That’s going to bite us at some period of time,” he said. “We’re still in a period where contracts were predicated on a weaker currency and were inked and signed, but eventually the high dollar will come to bear on these numbers.”</p> <p>On Tuesday, the EDC predicted exports could increase by 12 per cent this year and return to pre-recession peaks sometime in 2012, but the estimates built in a slight devaluation in the loonie.</p> <p>Trade still isn’t producing the big economic growth that that’s expected to come, although it has stopped being a drag. That’s because economic activity is measured by quantity of production, rather than the value of goods sold.</p> <p>So, discounting the rise in the value of the loonie and higher commodity prices, Canada actually had a trade deficit in March, noted Scotiabank economist Karen Cordes Woods.</p> <p>That anomaly stems from the fact that as the Canadian dollar rises, imports become less expensive, and as commodity prices soar, the value of commodities that Canadians export increases.</p> <p>In March, export volumes rose 2.5 per cent, retracing only about half of February’s fall-off. Meanwhile, import volumes rose 3.2 per cent, accounting for the real trade deficit.</p> <p>Still, the continuing growth of exports, both in volume and value terms, bodes well for the Canadian economy and suggests firms are still able to sell to the rest of the world in a high-loonie environment, for now at least.</p> <p>March’s export gains were led by energy products and industrial goods and materials, while automotive products, industrial goods, and machinery and equipment contributed to import increases.</p> <p>Exports to countries other than the United States rose 7.8 per cent, largely due to higher shipments to the European Union. During the same period, imports grew 2.1 per cent.</p> <p>Exports of energy products rose five per cent to $9.4 billion as prices increased 2.9 per cent and volumes grew by 2.1 per cent.</p> <p>After two months of declines, exports of machinery and equipment increased 4.8 per cent to $6.5 billion in March due mainly to higher shipments of aircraft, other equipment and tools and industrial machinery.</p> <p>Forestry product exports also rose 10.7 per cent to $2 billion.</p> <p>Exports of agricultural and fishing products fell 5.7 per cent to $3 billion. The drop was due mainly to a sharp, 39.6 per cent plunge in canola exports.</p> <p>Machinery and equipment imports rose 1.5 per cent to $10 billion, led by a 16.5 per cent gain in imports of aircraft, engines and parts.</p> <p>Imports of energy products increased 3.7 per cent to $4 billion. It was the sixth consecutive month of increase.</p> <p>Agricultural and fishing products imports were up 3.4 per cent to a record high of $2.7 billion. Imports of sugar and sugar preparations grew to unprecedented levels and largely accounted for the total gain in this sector, Statistics Canada said.</p>