MNI DATA IMPACT: Canada Dodges Record 2Q Trade Gap

Canada's second-quarter trade deficit was the widest since 2016, a milder result than record-setting damage to the job market and government finances that may provide some upside risk to GDP figures due at the end of this month.

The quarterly trade gap widened by CAD1 billion to CAD9.4 billion, with the four-year high not even stretching back in time to the last recession in 2009.

That resilience was masked by monthly figures Statistics Canada published Wednesday showing the deficit widened to CAD3.2 billion in June from May's CAD1.3 billion. The June figure was still well above the consensus view of CAD1 billion.

Statistics Canada has already said its flash estimate is that GDP fell at a 12% quarter-over-quarter rate between April and June. That comes out to something exceeding a 40% annualized pace that would be the steepest decline in postwar records. Still, the Institute of Fiscal Studies and Democracy's nowcast for the Q2 decline was scaled back after the trade figures to -43%, from -44% after the May GDP report. The full report on June and Q2 GDP is due Aug. 28.

OUTLOOK WEAK

Trade was one of Canada's weakest points before Covid-19 hit. Sagging exports and strong domestic consumer spending on imports held back GDP throughout the recovery from the 2008-09 recession, while the job market was a key strength and the government was running small deficits. Today the roles are swapped, with unemployment hitting a record 13.7% in May, up from 5.6% in February, and the government headed for a deficit worth at least 15% of GDP.

Canada's trade outlook remains weighed down by risks of U.S. protectionism, slower growth from America's struggle to contain the virus and weaker global demand until a vaccine is widely in use. While exports and imports both rose about 20% on the month, they are still at least 15% below year-ago levels.