The glory days for Canada’s booming trade surplus appear to be over, say leading economists.

“Canadian exporters shipped a bit more in June, but at sharply lower prices that left their pockets thinner, and that trimmed the trade surplus to $5.8 billion from a downward-revised $6.5 billion in May,” observes CIBC World Markets.

The value of exports dipped 1.4%, thanks to a 2% decline in prices. “Just as soaring energy prices fattened Canada’s trade surplus earlier in the year, tumbling prices for electricity and fossil fuels are now seeing the trade balance reverse course. The energy sector, a key reason why Canada outperformed the U.S. economy in the first quarter, is now turning into more of a negative in terms of relative growth across the 49th parallel.”

This is the smallest surplus so far in 2001, and it is way below the $6.8 billion that economists were forecasting. Yet it is still far above last year’s average of $4.9 billion. “After soaring to record highs early this year, Canada’s merchandise trade surplus is fading. Receding energy prices and softer U.S. demand are carving into exports, while still-firm domestic spending trends are keeping imports aloft. This is likely to be a theme through the second half of the year, and Canada’s towering trade surplus will fall closer to earth,” notes BMO Nesbitt Burns.

RBC DS Capital Markets Research agrees, noting, “Results are likely to wane further ahead, particularly as energy prices ebb. The deterioration is not likely to be dramatic, however — the Canadian dollar has demonstrated its substantial undervaluation in supporting a higher trade surplus over the past year even as U.S. demand fell off. Even a smaller trade surplus contrasts starkly with the massive U.S. deficit, remaining a support to the Canadian, and one with more kick if the U.S. dollar trend has indeed turned.”

BMO concludes, “Canada’s high-flying trade surplus is succumbing to the U.S. slowdown, although the underlying trade picture remains quite healthy.”

While CIBC World Markets suggests that it portends real growth weakness, noting, “Net trade will be a significant drag on Q2 GDP growth, and the unfavourable revision to the May surplus creates downside risk to our 1.4% real growth call for the quarter. Going forward, we expect a further slide in the real and nominal surplus in Q3, with lower prices for most Canadian export commodities.”