Canada's trade deficit narrows in July as exports climb

Canada's trade deficit with the rest of the world narrowed to $2.5 billion in July as Canada shipped more goods to the U.S. and abroad, Statistics Canada reported Friday.

Analysts had been expecting the deficit to narrow from June's record level of $4 billion (revised higher from the initial reading of $3.6 billion).

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The consensus view had the deficit dropping to $3.3 billion, so July's trade performance ended up being better than expected. Analysts said the July trade figures should serve to reinforce expectations that third-quarter growth will be solid.

"Trade was a sore spot for Canada in Q2, but July's data took a big step back in the right direction," Avery Shenfeld of CIBC Capital Markets said in a morning commentary. "Trade should be a big part of the rebound from a negative Q2 to a healthy Q3."

Boost for 3rd quarter

Statistics Canada reported earlier this week that June's GDP grew by a better than expected 0.6 per cent — the one bright spot in an otherwise weak second quarter.

The Bank of Canada expects annualized third-quarter growth of 3.5 per cent. 

"July's trade data contributes to the developing snapshot of Canada's economy in the third quarter, where we expect exports to make a decent positive contribution to growth," wrote TD senior economist Leslie Preston, who also called July's trade data a "step in the right direction."

"[But] it does not undo the damage from what has been a five-month string of disappointments for exports."  

Export growth widespread

July's growth in exports was widespread and led by non-energy products — motor vehicles and parts, metals and mineral products, aircraft equipment and parts, and industrial machinery.

Statistics Canada said exports of motor vehicles and parts rose because seasonal shutdowns at Canadian auto plants were shorter in July.

Nine of 11 sectors posted gains.

Total exports rose 3.4 per cent to $42.7 billion, the federal agency said. Imports slipped 0.1 per cent to $45.2 billion.

A 3.3 per cent rise in exports to the U.S. led to a major widening in Canada's trade surplus with the U.S.

It now stands at $2.6 billion, up from June's $1.4 billion.

The Canadian dollar closed up more than half a cent to 76.98 cents US.

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