Source: The Canadian Press

Canada’s key export sector is being hit hard by Europe’s troubles, but not enough to overcome improving conditions in markets elsewhere, fresh data suggests.

The country’s trade balance returned to surplus in April — following revised data that put March into deficit — despite a 23.4% plunge in exports to the European Union, Statistics Canada reported Thursday.

The fresh numbers suggest the Canadian recovery may not be put at serious risk from Europe’s unfolding debt crisis.

“As long as we avoid a real blow out where it sparks concerns about European banks and the exposure that global banks have, it’s a modest effect on Canada,” said Derek Holt, vice-president of economics with Scotia Capital.

“Our wagon is still hitched to the U.S. in term of trade exposure.”

On Wednesday, the World Bank cautioned that the European crisis could trigger a second, mild recession in advanced economies, but only if it worsens significantly.

The risk to Canada would be that a second recession would cause a collapse in the export sector, much as happened during the 2008-2009 global recession.

Speaking in Montreal on Thursday, Bank of Canada governor Mark Carney also called the European impact to date “modest,” although cautioning that it is still early days. He added, however, that so far he is encouraged by the policy response to the crisis.


Last month, European countries and the International Monetary Fund pledged about US$1 trillion as a backstop to Greece and other heavily-indebted countries, although Carney said more may need to be done.

Canada’s economy got another bit of good news from China, which reported Thursday that it had increased both exports and imports in May.

Markets reacted with enthusiasm on the prospects of continued strong growth in the world’s most populous country. Oil prices and the Canadian dollar rose, with the loonie jumping more than a cent in morning trading to near 97 cents US.

Although Europe is an important global market, the direct links to Canada are small. Canadian banks hold little of Europe’s sovereign debt.

Canada’s export exposure to the continent is less than 10%, so even a 23% fall-off as witnessed in April represented a small portion of the country’s overall trade.

More significant for exporters was the 0.7% increase in shipments to the United States, which still buys 72% of what Canada has to sell. By way of comparison, Canada exported only $2.5 billion in merchandise to Europe as opposed to $24.4 billion to the U.S. in April.

April’s surplus of $175 million was weaker than economists expected and was heavily influenced by a Canadian dollar that was soaring toward and past parity with the U.S. greenback that month.

In nominal terms, both exports and imports fell during the month. But in volume terms, exports rose 0.4% and imports by 0.2%. A stronger loonie trims what Canadian exporters receive for their merchandise, while reducing the value of goods imported into the country.

The volume increase is a good indicator of gross domestic product growth, however, since GDP measures total output rather than the total value of that output.

Exports rose in forestry products, machinery and equipment and auto parts, but fell in energy products.

But shipments in volume and nominal terms are still well down from pre-recession levels and could suffer in the coming months if U.S. demand, which has been boosted by a post-slump inventory buildup, slows in the second half of the year, say analysts.

The Conference Board issued another warning to Canada’s export sector on Thursday, pointing to its lacklustre performance not just during the recession _ which is defensible _ but in the past decade.

The Ottawa-based think-tank says Canada has only modestly improved exports to fast-growing China, made little headway in services trade and has been slow to adapt to the advent of global supply chains.

“For a country that considers itself a major trading nation, the trend lines for Canadian trade are uncomfortable,” said the think-tank’s chief economist, Glen Hodgson.