The gap between exports and imports narrowed in July, Statistics Canada reported Thursday. Canada’s merchandise trade balance fell to just over $4.4 billion, down from almost $4.6 billion in June.

Exports and imports of merchandise both increased in July, StatsCan said. Canadian companies sent $32.7 billion of goods abroad, up 0.5% from June. They brought in $28.3 billion of goods, a 1.2% increase.

Despite the drop economists say that trade remains healthy. Beneath the headline, the good news was that the prior month’s tally was revised up sharply up from an initial estimate of $3.6 billion.

RBC Financial said that the $1 billion upward revision is accounted for by StatsCan’s attempt to more accurately capture the influences of an appreciating Canadian dollar. “This will come as a mildly positive surprise to markets since exports were revised upward by $1 billion and $2.6 billion for the first and second quarters respectively,” it says.

BMO Nesbitt Burns noted that exports rose for the first time in four months, albeit by just 0.5%, benefiting from a rebound in industrial prices in the month. “This leaves exports down 6.7% from year-ago levels, and down 0.2% so far this year,” it said. “Meantime, imports also bounced up 1.2% after three months of decline, but are also down significantly from year-ago levels both for July (-5.9%) and on a year-to-date basis (-0.5%).”

RBC pointed out that Canada’s trade surplus with the U.S. widened further to $8.2 billion, with the non-U.S. trade deficit widening due to a sharp drop in exports bound for the E.U. and other OECD countries. Export gains were made in the agricultural, fishing, energy, forestry, and automotive sectors, while losses came in industrial goods and materials, and machinery and equipment categories. Imports fell in the agricultural, fishing, energy, and forestry sectors.

CIBC World Markets warned that next month’s report will capture the impact of the power outage in Ontario, and subsequent conservation efforts, which dented heavy industry production and exports.

Nesbitt said that it expects the trade surplus to narrow in the months ahead, as the full impact of the stronger dollar weighs in. “The underlying trade picture remains healthy, despite the challenges of the beef export ban, the ongoing lumber dispute, a soaring Canadian dollar, and soft global demand.”

http://www.statcan.ca/Daily/English/030911/d030911a.htm