Canada: International Trade – and Domestic – Headwinds?

Consensus Forecasts

Output-based GDP rose by 0.1% (m-o-m) in April after Q1’s 0.6% (q-o-q) surge. In y-o-y terms, growth slowed from the 1.7% pace seen in February and March to 1.4% in April. Services led the monthly uptick in GDP, accelerating by 0.3% following a 0.2% rise in March, with wholesale, retail and financial & insurance activity recording gains. By contrast, goods-producing industries had a weak month. Industrial production fell by 0.4% (m-o-m) following a 0.5% rise in March, dragged down by a 1.5% contraction in mining, quarrying, oil & gas extraction over the month. Manufacturing did manage a 0.2% rise following a flat month in March, supported by durables output, but the industrial sector has been impacted by weakness in Canada’s major export markets (and more recently by signs of waning domestic demand). US manufacturing has been in the doldrums, although a few leading indicators suggest it could be on the cusp of rebounding (see page 5). This will hopefully give some impetus to Canadian industry which saw manufacturing sales tumbled from a 0.6% (m-o-m) decline in April to -2.4% in May. The 2013 production consensus has faltered this month.

May’s trade deficit narrowed to C$-303mn from C$-951mn in April as a 3.2% (m-o-m) fall in imports outpaced the 1.6% drop in exports. A softer job market (June payrolls were mostly unchanged after May’s 95,000 surge) is also weighing on domestic demand. On the upside, after a sluggish year, June housing starts recorded a stronger-than-expected 199,586 gain while May’s figure was revised from 200,178 to 204,616. Softer housing activity going into 2014 is still expected, and the prospect of a more serious retrenchment could also occur, although the 2013 housing starts outlook has been upgraded.

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