Exports declined by 1.6 per cent after Canada’s exports of precious metals, mostly gold, contracted by a stunning 35 per cent in May. Gold fell from a peak of $1,472 per ounce to $1,350 during the month, after a similarly precipitous decline in April ,and buyers used up inventories so that export volumes were impacted as well as prices. With gold currently trading in the low $1,200-range more weakness is to be expected in the metals sector.
Setting aside the impact of gold, Canada’s exports would have risen by 0.3 per cent, an uninspiring result in a very mixed month. The big winner in May was the industrial machinery and equipment sector which bounced back from a disappointing April to rise 4.3 per cent. The main drivers were commercial and service machinery which rose 27.6 per cent, metal working machinery which rose 25.2 per cent and agricultural machinery which climbed 16.8 per cent. The consumer goods sector chalked up a healthy 2.1 per cent gain because of food and beverage exports. Canada’s forestry sector edged down by 0.8 per cent as a 4.8 per cent fall in building and packing materials offset a 31 per cent gain in logs and other forestry products, as demand from the red‐hot U.S. housing market charges ahead.
Sadly, the red‐hot rise in U.S. auto sales has not yet translated into stronger Canadian production as motor vehicle exports tumbled 4.1 per cent.
By destination, May’s weakness was widely shared with exports to the U.S. declining by 1.6 per cent, while exports to the U.K. fell by 32.3 per cent, the latter mainly because of gold. Thank goodness for sales to emerging markets which rose by 5.1 per cent.
Overall, May was a surprisingly weak month for trade because declines came in spite of relatively positive economic indicators. Looking ahead, the accelerating momentum in the U.S. and rising consumer confidence should provide a welcome boost, while the positive growth outlook for emerging markets should also provide lift. The main downside risk to Canada’s export growth comes from further deterioration in commodity prices
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