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January 2015 IMTS: What’s one to make of conflicting Canadian trade reports?

Chart 2 Trade Balance Statcan

Statscan’s January 2015 Canadian International Merchandise Trade Statistics (IMTS) report released today read about as badly as such a report could. To put the January results into historical perspective, it notes: “Canada’s merchandise trade deficit widened from $1.2 billion in December to $2.5 billion in January, the largest since the record $2.9 billion deficit in July 2012.” Further: “Canada’s trade surplus with the United States narrowed from $2.2 billion in December to $1.2 billion in January, the lowest surplus since 1992.”

Why, it almost seems like it was just yesterday that the virtues of export-led economic growth were being touted…

Chart 2 Canada Net Exports BMO

Actually, it was two days ago BMO Financial’s AM Charts March 4 ,2015 daily brief included a note, captioned Canadian Exports: Can’t Ask for Much More, that stated: “the BoC can’t complain that exports aren’t carrying the growth baton. Look for that trend to continue in 2015 as
a weaker dollar and firming U.S. growth help.”

So how does one account for the glaring discrepancy?

The Statscan IMTS report, which includes the first chart above, strictly looks at international merchandise trade, Except for a few positive months in 2011 and early last year, it’s pretty much been negative for the last 5 years. The bump early last year coincided with a period during which the Canadian dollar had started to slide prior to the precipitous plummet in oil prices.

Statscan’s Q4 and December Canadian economic accounts report was released just three days prior to its IMTS report. The economic accounts reports looks at demand, including info on international trade of both goods and services. The latest report noted a marked drop in economic growth stemming from the oil price drop:  seasonally-adjusted Q4 growth of 0.6 percent was a significant decline from Q2 growth of 0.9 percent (preliminary results, likely to be further revised down).

The economic accounts seasonally-adjusted trade data appear to show the same trend as the IMTS report did: Canadian exports rose during the brief period in early 2014 when the loonie was lower (than its historcal height in recent years) but oil prices were still relatively stable. The plunge in oil prices starting mid-year that coincided with a marked drop in Canada’s petrodollar significantly gave back those gains. The consistency between the two reports isn’t surprising, since services make up a relatively small share of Canadian international trade.

So how/why do the Statcan and BMO charts showing net exports appear to be markedly different? BMO’s chart shows annualised net exports and presents them as a share of GDP; strong export growth in early 2014 is rolled in with relatively weaker economic growth over the entire year to suggest a trend that should reasonably be expected to “continue in(to) 2015”.

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