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Merchandise Trade Analysis - July 2017

International trade plunges in July

Canadian exports were down significantly in July, marking the second consecutive month of declines after what had been a strong start to the year. After hitting an all-time monthly high in May, exports fell by 5.0 per cent in June and then again by 4.9 per cent in July, dropping to $44.1 billion for the month. Exports are suddenly at their lowest level since last October.

The story was about the same on the import side. Canadian purchases of foreign goods dropped by 6.0 per cent last month to $47.2 billon, dropping monthly imports to their lowest level since February. As a result of the twin declines in trade flows, Canada's trade deficit narrowed slightly, from a revised $3.7 billion in June to $3.0 billion in July.

The impact on trade was largely the result of lower prices for traded goods. Average export prices fell by 2.8 per cent in July, while import prices were down by 3.7 per cent. The difference between the two can be explained in part by the strengthening Canadian dollar over the summer, which rose from an average of 75.2 cents US in June to 78.8 per cent in July. The higher dollar helped lower the price of imported goods.

However, there is no readily-available explanation for a large, cross-the-board reduction in export prices in the face of a rising exchange rate. Export prices were lower in lower in every single industrial category in July, with the largest declines in aerospace, chemicals and plastics/rubber products, and in motor vehicles and parts. The drop in import prices was also heaviest in those same industry groupings.

In spite of lower prices, exporters also saw overall sales volumes drop by 1.0 per cent in July. The volume of industrial goods, aircraft and vehicles were all down sharply, offset in part by increased gross sales of raw metals, metal products, and chemical products. The story was much the same on the import side as well.

The sudden drop in exports in June was widespread but largely driven by lower sales of energy and precious metals. In July, however, the decline was more evenly distributed. Exports were down in nine of the 11 major product categories. Aerospace-related exports fell by 18.3 per cent, while deliveries of motor vehicles and parts were 9.6 per cent lower compared to June. There were also steep declines in industrial machinery and forest products. In fact, raw metals and minerals was the only product category to make any appreciable gains in July, with exports jumping by 12.2 per cent.

Looking at major destinations does nothing to uncover a specific explanation for Canada's weak export performance in July. Sales to all of Canada's most important destinations were down that month, with the sole exception of China, where exports were up 4.7 per cent. Deliveries to the US were down 3.2 per cent, while sales into the UK, Japan and South Korea fell by between 15 and 20 per cent each. The most severe declines, however, were in exports to the Middle East, which fell by more than 50 per cent.

This is not to say that the news was all bad on the destination side. In July, Canada made notable export gains into Switzerland, the Netherlands, Russia and India. 

As noted above, the trade story was even worse for imports. Imports were down in every single major product category in July, led by a 35 per cent drop in aerospace deliveries. There were also substantial declines in imports of energy and metal products.



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