MNI DATA ANALYSIS: Canada Growth Rotation Happening

By Yali N'Diaye

     OTTAWA (MNI) - The latest set of data show that the Canadian economy has

been relying more on exports, indicating the growth rotation is happening, at

least on the export front: 

--STRONGER EXPORTS

     The merchandise trade deficit narrowed to C$0.6 billion in June from C$2.7

billion in May, the smallest deficit since January 2017. 

     The improvement was led by exports, which were up 4.1% in June, the largest

gain since November 2016, to reach a record high value of C$50.7 billion. Sales

abroad only declined in January and May this year.

     Export volumes rose 2.1%, more than offsetting the 1.9% contraction in May,

and translating into a 3.8% gain in the second quarter.

--EXPORT UP DESPITE US TARIFFS

     Gains in exports occurred in the face of newly imposed U.S. tariffs on

imports of Canadian steel (25%) and aluminum (10%), showing Canadian exporters

benefited from stronger U.S. demand.

     On a customs unadjusted basis, total exports rose 1.9% in June after a 7.3%

gain in May. However, steel exports to the U.S. plunged 36.8% after surging

40.0% from  February to May, and compared to an average June decline of 0.2%.

Aluminum exports to the U.S. fell 7.0% on the month after rising 28.5% from

February to May, compared to an average June decrease of 2.3%. Excluding steel

and aluminum, exports were up 3.0% on the month.

     Canada retaliated with tariffs on imports of steel, aluminum and other

products from the U.S., which went into effect on July 1 and will begin to show

up in next month's data. It remains to be seen how Canadian importers will

react. According to data obtained by MNI, imports of U.S. steel surged 32.1% in

June on a customs unadjusted basis, while imports of U.S. aluminum rose 1.7%.

--BUSINESS INVESTMENT

     Meanwhile, on the domestic front, imports of industrial machinery,

equipment and parts rose 2.2%, a positive sign for business investment,

especially as NAFTA talks linger, still representing a drag.

     Imports of industrial machinery, equipment and parts have been posted gains

in four out of the first six months this year, including May (+1.7%) and June.

     The key question remains how tariffs will impact exports and trade between

the U.S. and Canada going forward, and whether it could prevent further growth

rotation towards more reliance on exports and business investment.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]