Dollar fails to dampen exports

OTTAWA — Canada’s trade surplus with the rest of the world almost doubled in March, suggesting the strong loonie may not be as much of a drag on exports as feared.

OTTAWA — Canada’s trade surplus with the rest of the world almost doubled in March, suggesting the strong loonie may not be as much of a drag on exports as feared.

Statistics Canada said the value of Canadian exports outpaced imports by $627 million during the month, up from a $356-million surplus in February.

In volume terms, Canadian exports have risen 12.4 per cent in the first three months of 2011, following a 16 per cent surge in the final quarter of last year, despite the persistent and growing strength in the loonie.

“The high-flying Canadian dollar doesn’t appear to be dampening enthusiasm for Canadian exports,” said economist Benjamin Reitzes of BMO Capital Markets.

“Overall, the rebound in international trade activity is very encouraging after real (gross domestic product) contracted in February.”

But even the February dip might not have been as pronounced as first reported.

TD Bank economist Leslie Preston pointed out that Statistics Canada revised the February trade surplus upwards by a factor of 10 after initially reporting it at a slim $33 million. In any case. February’s swoon doesn’t appear to have been sustained, she said.

“In in terms of first quarter growth, I would say this (Wednesday’s) report was very good,” she said.

“I think you see the effect of the dollar mostly in imports because import prices declined 0.4 per cent in March,” she added.

Preston said her bank had projected a strong, 3.8 per cent expansion in the economy in the first quarter, which ended in March, and now may be over four per cent.

Trade still isn’t a big engine of economic growth, however, although it has stopped being a major drag. That’s because economic activity is measured by quantity of production, rather than the value of goods sold.

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.

That anomaly stems from the fact that, as the Canadian dollar rises and as prices of commodities surge, the value of exports has skyrocketed far more than the actual volume of shipments.

Meanwhile, the strong loonie has masked just how much Canadians are importing.

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.

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.

On Tuesday, Canada’s export development corporation predicted exports could increase by 12 per cent this year and return to pre-recession peaks sometime in 2012.

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.

The trade surplus with the United States narrowed to $4.8 billion in March from $5 billion the previous month.

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. The trade deficit with countries other than the U.S. declined to $4.2 billion from $4.7 billion in February.

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.

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.

Forestry product exports rose 10.7 per cent to $2 billion.

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 drop in canola exports.

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.

Imports of energy products increased 3.7 per cent to $4 billion. It was the sixth consecutive month of increase.

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.