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Trade figures stall

OTTAWA — Falling exports and higher trade deficits in Canada and the United States in June are sending a warning that the global recovery is slowing faster than policy-makers anticipated, according to analysts commenting Wednesday on the latest trade figures.
Samer Farhood, Robert Fava, Glenn Kessler
Specialist Samer Farhood

OTTAWA — Falling exports and higher trade deficits in Canada and the United States in June are sending a warning that the global recovery is slowing faster than policy-makers anticipated, according to analysts commenting Wednesday on the latest trade figures.

Canada’s monthly trade deficit came close to doubling to $1.13 billion during the month, as exports fell 2.5 per cent.

Meanwhile, the U.S. recorded its worst trade month in almost two years, as the deficit ballooned 19 per cent to $49.9 billion, and exports fell 1.3 per cent.

Even China, counted on to lead the world out of the slump, reported Wednesday that its industrial rebound slowed further in July, after braking somewhat in the previous three months.

The triple whammy of negative news, combined with a warning from the U.S. Federal Reserve on Tuesday that the recovery was weaker than expected, sent global markets spiralling lower.

The Toronto and New York stock exchanges were both down over 250 points Wednesday — more than two per cent — and the Canadian dollar fell more than a cent to 95.67 cents US.

While trade numbers can be volatile, economists say the broader trend line across indicators is pointing consistently downward, and more so than central banks in Canada and the U.S. have been projecting.

“We’re not far from a stall,” Brian Bethune, chief economist for IHS Global Insight, said of the U.S. economy.

“I don’t think we have the ingredients that would normally accompany a double-dip, but certainly we are getting into stall speed.”

Bethune said it was highly unlikely Canada could avoid getting broadsided if there is a sharp slowdown in the U.S., where about three-quarters of Canadian exports wind up.

Bank of Montreal economist Douglas Porter called the U.S. economy the more concerning of the two because of its potential to impact the global recovery and Canadian exports, but cautioned that Canada’s domestic economy is also showing signs of stress.

In recent weeks retail sales, employment and housing sales and starts have all come in far weaker than projected.

“It’s just unfortunate that, suddenly, we are getting a whirlwind of reports that just a few weeks ago were looking strong, suddenly giving back that strength,” Porter said.

He estimated the falling exports sector could sap as much as four percentage points from national output, and has dropped his forecast for second-quarter growth from 2.7 per cent to 2.3 per cent. That’s below the Bank of Canada’s estimate of three per cent and about one-third the pace seen in the first quarter.

Meanwhile, economist Peter Morici of the University of Maryland estimated a similar downgrade for the U.S. from the previously reported 2.4 per cent to about two per cent.

In both countries, growth is forecast to slow further in the current third quarter, which ends September 30.

But the more troubling scenario is if the present situation actually represents a foretaste of what the U.S. and, to a lesser extent, Canadian economies will experience over the next decade, says David Rosenberg of Gluskin Sheff.

Rosenberg, a noted bear, has long held that the robust two-quarter bounces in Canada and the U.S. were mirages and that the nature of the 2008-2009 recession, caused by too much debt, was unlike recent previous slumps.

“I know this sounds a bit dire, but little has changed from where we were a year ago,” he said. “Balance-sheet recessions are different animals than traditional inventory recessions, and the transition to the next sustainable expansion ... in these types of cycles takes five to 10 years and are fraught with periodic setbacks.”

Bethune said it was a mistake for Bank of Canada governor Mark Carney to have raised rates as both the slowing U.S. recovery and the new HST sales tax in Ontario and British Columbia were already adding drag to growth.

The Canadian central bank raised the overnight rate one-quarter point in each of June and July to 0.75 per cent. It is expected to nudge the policy rate to one per cent in September.

That latest trade numbers were almost uniformly weak.

Exports fell in both dollar and volume terms. Exports to the United States decreased one per cent; exports to the rest of the world fell seven per cent.

Shipments fell in industrial goods and materials, energy and autos. The key gain was in exports of machinery and equipment.