Canadian economy becoming more export driven
- 6 Oct 2016
- The StarPhoenix
- GORDON ISFELD
- Financial Post
Economy becoming more export driven
Long-awaited ‘Great Rotation’ seems to be taking place as trade improves
The Great Rotation has not developed — in fact, if anything, we seem to be going counterclockwise.
OTTAWA This should put a smile back on Stephen Poloz’s face. The Bank of Canada governor has shown a lot of patience — and guarded optimism — waiting for the so-called “Great Rotation” from a consumer-led economy to one driven more by exports. Now, there could be enough data to support that scenario.
Canada’s exports rose in August for a third straight month, reducing Canada’s trade deficit with the rest of the world in the process.
“Many forecasters — including the Bank of Canada — are watching the trade numbers closely, waiting for signs of a revival in the rotation,” TD economist Dina Ignjatovic said in a note to investors.
“After essentially stalling in the first half of this year, exports appear to be moving in the right direction — albeit slowly, as they have yet to recoup the ground lost since January,” Ignjatovic added. “We expect further progress to be made on this front in the coming months, as the recent uptick in U.S. economic activity should lead to increased demand for Canadian goods.”
Shipments of those goods were valued at $43.4 billion in August, an increase of 0.6 per cent, Statistics Canada reported Wednesday.
Six of 11 sectors tracked by the federal agency showed gains during the month — led by exports in consumer goods and mineral products.
Energy exports were up 4.4 per cent for a sixth consecutive month, “on widespread gains throughout the section,” the agency said.
Meanwhile, imports were mostly flat in August.
That helped push Canada’s trade deficit with other countries to an eight-month low of $1.94 billion, from a downwardly revised $2.19-billion shortfall in July. Many economists had forecast a larger deficit, of $2.6 billion, in August.
Canada’s trade surplus with the United States, our biggest market, narrowed to $2.5 billion in August from $3 billion a month earlier.
In a separate report Wednesday, the U.S. Commerce Department said the country’s trade deficit increased in August as a higher level of imports offset an impressive jump in exports — leading to a three-per-cent rise in the country’s trade deficit.
For Canada’s central bank chief, however, Wednesday’s trade data could provide some welcome relief from what Poloz has called “a serial disappointment” in the economy since his term as governor began in mid-2013, when he replaced Mark Carney.
As one private-sector economist put it at the time, “The Great Rotation has not developed — in fact, if anything, we seem to be going counter-clockwise.”
Like his predecessor, Poloz has been frustrated by the slow pace of the anticipated business-investment handoff from consumers, the main drivers of the recovery coming out of the 2008-09 recession.
While bottom-scraping interest rates helped lift household spending and home purchases, they have also led to record-high personal debt and prompted governments and regulators to tighten mortgage-lending rules. But until the Canadian economy gets on a steady growth track, Poloz and the other members of the central bank’s governing council will likely keep their trendsetting lending level at 0.5 per cent.
Yet, despite the collapse in global oil prices two years ago — an event that threw energy-dependent provinces into a tailspin — and recent Alberta wildfires that destroyed communities and disrupted oil production facilities, the economy as a whole, and exports in particular, appears to be regaining momentum.
“We had a really bad second quarter for trade, when exports cut points from growth. Part of that was wildfire related, but another was some softness in nonenergy exports as well,” said Robert Kavcic, senior economist at BMO Capital Markets.