Cargo is unloaded from a ship at the Centerm terminal in Vancouver February 11.Jeff Vinnick/The Globe and Mail
Economic weakness overseas is washing up on home shores.
The slowing global economy weighed on Canadian and U.S. trade in August, with exports and imports taking a hit.
Weaker trade is putting a dent in the economies of both countries in the third quarter. Most forecasters now expect annualized growth of less than 2 per cent for each in the July-to-September period.
Canada posted a fifth consecutive merchandise trade deficit in August – $1.3-billion, down from $2.5-billion in July, according to Statistics Canada figures released Thursday. A 3.1 per cent plunge in imports was in contrast to a modest 0.1 per cent export decline.
Bank of Nova Scotia economist Derek Holt said the Canadian trade figures suggest "an abrupt slowing in the domestic economy." Both consumer spending and business investment appear to be stalling, he said, and "the quarter as a whole is not shaping up to be kind to Canadian exporters and importers."
Exports are down 12 per cent so far this year after nearly recouping all the ground lost during the 2008-09 recession, Toronto-Dominion Bank economist Francis Fong pointed out. "Canada's trade performance continues to suffer amid a global economic slowdown and a high Canadian dollar," Mr. Fong said in a note to clients.
Many economists are now tempering their economic forecasts for 2012 and beyond. On Tuesday, the International Monetary Fund downgraded its outlook for Canada and the world. The IMF said Canadian GDP would grow 1.9 per cent in 2012 and 2 per cent next year, down from its previous calls of 2.1 and 2.2 per cent, respectively.
The IMF is also more downbeat about the global economy. It lowered its forecast for global output to 3.3 per cent this year and 3.6 per cent in 2013, citing elevated "downside risks." The risk of a global slowdown is now "alarmingly high."
In spite of the high dollar relative to the greenback, most of the drop in Canadian exports so far this year is coming from declines outside the U.S., BMO Nesbitt Burns Inc. economist Douglas Porter pointed out. Exports are off 27 per cent to Japan, 15 per cent to Europe and 19 per cent to all other wealthy member countries of the Organization for Economic Co-operation and Development, he highlighted in a commentary.
Mr. Porter estimates that trade alone will knock a percentage point off Canadian gross domestic product in the third quarter. BMO is forecasting annualized GDP growth of just 1 to 1.5 per cent in the quarter.
At least one economist – David Madani of Capital Economics – said Canada could grow at a paltry annual pace of less than 1 per cent.
Exports of cars and parts, coal and bitumen, and industrial goods were all lower in August. On the import side, industrial goods, autos and machinery were all lower.
Trade data for the U.S. were equally sobering. The trade deficit widened to $44.2-billion (U.S.) from $42.5-billion in July. And like Canada, both exports and imports fell. Exports were off by 1e per cent from July; imports were down 0.1 per cent.
The numbers are "further evidence that U.S. manufacturers may be struggling . . . with soft overseas demand," CIBC World Markets economist Andrew Grantham said.
The U.S. trade deficit is running at an annual rate of $561.6-billion, up slightly from last year's $559.9-billion gap.
Manufacturers in particular are feeling the impact of the slumping economies in Europe, China and other key export markets. Many European countries are already in recession.
Well Fargo Securities economist Jay Bryson said even the IMF's new lower forecast looks optimistic. "It is tough to see how trade could be a significant boost to GDP next year," he said.