OTTAWA — There are more signs that Canada’s economy is slowing down, as exports buckle under the strain of a strong dollar and soft global demand.
Statistics Canada delivered a double dose of negative news Thursday, reporting that the country had a trade deficit in March — not a surplus as previously reported — and an even bigger trade deficit in April.
The increased deficit was primarily due to a 1.9 per cent plunge in exports, slightly offset by a 0.6 per cent decline in imports.
April’s international trade deficit was $924 million, more than double the $417 million experienced a month earlier. The revised figure for March compared with a $627-million surplus that Statistics Canada had reported on May 11.
Analysts said Canada was being buffeted by a number of factors, both temporary and structural, including a strong loonie that makes Canadian exports less competitive, a weaker global outlook, supply chain disruptions from natural disasters, and ongoing competitiveness issues.
“This summer is feeling awfully similar to last summer when the wheels were falling off across a variety of economic indicators,” said Derek Holt, vice-president of economics for Scotiabank.
“It’s going to be a weak second quarter and third quarter and then we start to bounce back after.”
The Bank of Canada has already projected that second-quarter growth would come in at about half the first quarter’s healthy 3.9 per cent advance, but Holt says the trade deficit, if sustained, could result in a dip to as low as one per cent.
Arlene Kish of IHS Global Insight also projected weak second-quarter growth at 1.5 per cent.
So far, Canada’s employment record has yet to register the slowdown, judging by the 130,000 jobs added since January and 58,000 in April.
But some economists say the reckoning in the labour markets could be felt as early as Friday, when Statistics Canada releases the new figures for May. Bank of Montreal economist Michael Gregory said he believes April’s jump was an “outlier” and jobs will likely come in flat in May.
“April and May are going to be pretty abysmal months for the economy,” Gregory predicted.
Analysts also expert the slowdown, which is only registering with lagging indicators, will give way to a modest rebound in the second half of the year as the supply disruptions from the Japanese natural and nuclear disasters recede, and commodity prices moderate.
The Royal Bank issued a new forecast of average 3.2 per cent growth in Canada for 2011, although that is on the high end of private sector projections. Some still call for growth of about one percentage point below the RBC call.
Most agree that exports must perform better for Canada to return to decent growth, particularly as the domestic economy is hobbled by high consumer debt, a slowing housing sector, and restraint in the government sector.
One of the main problems for exporters, beside the dollar, said Peter Hall of Export Development Canada, is the flow-through impacts on global households of high oil prices.
“There is evidence it is constraining demand, it is taking up a bigger share of consumer budgets and when that happens inside of a market that is still looking for a true recovery, you’ve got a problem on your hands,” he explained.
Complicating matters is that there are also supply constraints, he said, stemming from recent natural disasters in Australia, Japan and other regions that have disrupted flows of everything from raw materials, auto parts and food.
Global issues were written all over the report. Japan’s weakness was demonstrated in the 31 per cent drop-off in imports from the country, and 1.8 per cent decline in exports. The U.S. took advantage of the weak greenback to narrow its trade deficit with Canada to $3.9 billion from $4.2 billion in March. Trade with Europe also weakened during the month.
That has shown up particularly clearly in Canada’s volume of exports, after price effects are discounted.
The volume of shipments fell 1.1 per cent in April, led by a whopping 38.5 per cent crash in the volatile aircraft industry, and lower results for forestry and industrial goods and materials.
Overall, Canada’s trade deficit with countries other than the United States widened to $4.8 billion in April from $4.6 billion in March.