Canada’s trade surplus shrinks
“Canada’s trade surplus shrinks”, “Bankruptcies increase as loonie gains”, and “Soaring loonie; plunging outlook”. It’s amazing how the headlines change in two days. And oh yeah, I almost forgot Friday’s report on “looming factory job losses”. The culprit? Of course… the rising Canadian dollar. Well, I’ll get to my opinion after I tell you the news.
Exports were at a one-year low in September, said Statistics Canada on Friday. Rising imports also shrank the surplus to $2.6-billion. Exports are slowing, but the imports of cheaper foreign goods are also soaring. Domestic exports of goods such as lumber, telecom equipment and trucks are sliding and the overall decline will likely continue, according to many economists.
The economists are also cutting their annualized growth forecasts. Well probably not a bad prediction, considering that exports make up more than a third of Canadian GDP. Bankruptcies are also sneaking their way up. According to the CIBC, business bankruptcies are growing for the first time since early 2002 and personal bankruptcies, as of September, rose at the fastest pace in more than three years. The question is, what is responsible? And if it is the high Canadian dollar, are we really headed towards a recession?
The answer is unclear, but one thing I can say for sure is that the media sure likes to exaggerate the issue. I don’t quite understand why the “soaring loonie”, and a “rising surplus” has to be instantly correlated with a “plunging outlook”. A surplus isn’t always the most wonderful thing, and imports are not necessarily ‘bad’ and ‘evil’. The fact that we can afford and purchase more products (whether they be domestic or foreign), increases our utility (our standard of living). If I remember correctly, that’s why we trade… right?
Maximizing our exports and minimizing our imports does not put our economy at its best; as a matter of fact, it makes no sense at all. A balanced, healthy two-way trade is supposed to be the objective. Having a more balanced trade for a period, or perhaps even a small trade deficit, will not kill us! America’s huge trade deficits won’t last forever; so what makes us think that our massive trade surpluses will? So there is nothing wrong with loosing a bit of ground on our surplus, and it doesn’t mean we have to expect a recession; Remember: expectation in the markets, only make the outcome more likely.
Conclusion: Don’t let these misleading headlines lead you running for the exits. The loonie has only been at par or higher for about a month and half. Its effect on our numbers haven’t even started to filter through the system yet. Until then, you could expect some more headlines like the following: “GST/PST revenues plunge as cross-border shopping takes its toll”, “Alberta beef farmers slammed by high CAD”, “Where did the yankee visitors to Canada go?”, “Americans buy less Canadian exports”, “Canadian multinationals take hit on bottom line from currency conversion”, … I think you get the point.
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