Canada is bringing in more goods than it is shipping out, and the gap between the two totals widened to a veritable chasm this summer.
The country’s trade deficit — the amount by which the cost of our imports exceeds the value of our exports — hit an all-time high in June, coming in at a record $3.6 billion. That was up from $3.5 billion in May, Statistics Canada reported last week.
The overall volume of exports out of the country has been steadily decreasing for five months straight.
What’s going on here?
According to TD economist Brian DePratto, those numbers shouldn’t fill Canadians with confidence when it comes to the broader health of their economy.
“It’s not encouraging, that’s for sure,” DePratto said. “We’re sitting in the middle of what’s an economic rotation in Canada.”
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Canada is trying to move away from the commodities sector (oil, gas, mining) as a source of growth, the economist explained, and toward non-commodity exports — like automobiles or electronics.
With the price of oil plummeting to a 12-year low of $28.50 last January and now hovering around $40, the country has shifted away from major production mode in oil rich provinces like Alberta. But the non-commodity exports aren’t quite filling the gap.
“To my mind, it seems as though that rotation process has stalled somewhat,” DePratto said. “So (the trade deficit) is a symptom of that deeper issue.”
The government has already done quite a bit to try and move things along, he added, unveiling a stimulus package in the budget last spring that includes investments in infrastructure and the new Canada Child Benefit cheques that began arriving in mailboxes last month.
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Economists and the Bank of Canada are anticipating that the trade deficit will start to shrink again in the coming months, DePratto said, but a lot will depend on the situation beyond our borders.
“The bigger issue, to my mind, is really south of the border. A lot of that weakness, in terms of the trade, can really be linked back to weakness in the U.S. economy.”
But Conservative MP Lisa Raitt, the Opposition’s finance critic, said Ottawa shold be doing much more.
“Canadian jobs depend on trade and as Canadian exports remain weak, the unemployment rate will continue to climb,” Raitt said.
“Last week we learned that the Canadian economy lost more than 31,000 jobs in July and if the Liberal government was serious about jobs and trade, the Liberals would support the Trans-Pacific Partnership and get a deal on softwood lumber.”
How does this affect you?
So what does the historic gap between imports and exports mean for the average person?
DePratto said that while the number of car parts and barrels of oil we ship abroad doesn’t “directly” affect every individual Canadian, “it speaks to that underlying health of the economy,” which has a big impact on things like jobs.
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“What does this mean for manufacturing employment? Well, if the demand’s not there, if they’re not exporting things out, well then they’re not going to be hiring. So I think that’s how it feeds through to the average Canadian.”
Manufacturing employment has already taken a major hit over the last decade, declining from 2.1 million jobs in 2006 to 1.7 million jobs in 2014.
One thing to consider when you examine the latest trade numbers, DePratto noted, is that they include only the goods Canada exports, not the services. That means the picture is incomplete.
“This is just one slice … 70 per cent of the economy is services. You look at things like tourism, or whether it’s banking, accounting, anything like that can also be exported. We’re not seeing that in this picture.”
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