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Economic News

Canada: The New Trans Mountain Pipeline Is Already Boosting Exports

August 6, 2024
Marc-Antoine Dumont
Senior Economist

Highlights

  • Canada’s international merchandise trade balance swung back into surplus from -$1.6B in May to $0.6B in June. This was well above the consensus expectation for a $2B deficit in the month.
  • Exports increased by 5.5% m/m while imports edged up by 1.9% in June. In real terms, both exports and imports were up, with gains of 4.6% and 1.2%, respectively.
  • Quarterly exports and imports increased by 1.1% and 2.0% respectively. After adjusting for prices, real exports fell 0.4% in Q2 while real imports advanced 0.3%.
  • Canada’s trade deficit with countries other than the United States narrowed from $10.4B to $8.7B. Meanwhile, the trade surplus with the US edged up to $8.8B from $9.4B.

Comments

Oil exports were the main driver behind the unexpected return to a goods trade surplus in June. While the start of operations of the new Trans Mountain pipeline didn’t move the needle in May, it pushed energy exports higher by 11.7% in June, almost entirely on higher volumes (9.7%). Although we were expecting the new pipeline to support exports, it moved up the timeline.

 

Exports of metal and non-metallic mineral products rebounded in June with a gain of 11.8% after a decline of 7.3% in May. Uncertainty and market volatility likely pulled investors toward gold again as precious metal exports were up 35.3%. Given the recent developments in financial markets, we expect continued volatility in this category.

 

Imports are back to the all-time high seen in June 2022 of $66.0B, following a modest softening in consumer demand. Most of the gain came from motor vehicles and parts (5.1%) as imports of passenger cars and light trucks reached a new record level of $6.8B in June.

Implications

The stronger-than-expected trade print in June points to Q2 real GDP growth of 1.7% (annualized), slightly higher than projected by the Bank of Canada in its July 2024 Monetary Policy Report (MPR). Net exports are now anticipated to be just a modest drag on overall economic activity in the second quarter. That said, we continue to track real GDP growth in Q3 well below the 2.8% published by the Bank last month.

 

All told, today’s trade release shouldn’t have any meaningful implications for monetary policy. The Bank is likely to be focused on the upcoming release of July jobs data on Friday, particularly in the context of the weak print south of the border. The resulting market volatility and repricing of Fed rate cuts following the release may also be front of mind. That said, we remain of the view that the Bank of Canada will cut rates by 25 basis points in September and the Federal Reserve should do the same, assuming that data continue to evolve broadly in line with the central banks’ expectations.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.