Canada's trade surplus swells

TAVIA GRANT ,  Globe and Mail Update

Surging energy exports lifted Canada's trade surplus to its highest level in almost a year, Statistics Canada said Tuesday. The $5.82-billion surplus was greater than expected and sent the Canadian dollar higher.

Economists had expected a July surplus of $5-billion from a revised $4.87-billion surplus in June.

Petroleum exports have risen for five straight months, setting a record with each gain, Statscan said. Since February, they've climbed at an average monthly rate of 6.1 per cent as crude oil prices surged. July's boom in oil exports drove Canada's total exports to their third highest level on record, StatsCan said.

The Canadian dollar strengthened after the report, trading at 84.87 cents (U.S.) from 84.32 cents Monday on expectations robust oil exports will continue to bolster Canadian economic growth, sending interest rates higher.

“Currency markets are taking the rise in the Canadian trade surplus and connecting it to the energy story,” said Stewart Hall, market strategist for HSBC Securities (Canada) Inc., in a note. “July's lofty prices for petroleum leads to even loftier prices in August. Using the straight ruler accounting methodology infers that the trade surplus in August is going to be even larger.”

July's report showed exports rose 2.1 per cent to $38.04-billion in July from June, the department said. At the same time, imports fell 0.5 per cent to $32.2-billion.

Canada's trade surplus with the U.S. rose to $8.8-billion in July from $8.2-billion in June. Exports climbed 2.4 per cent while imports edged up 0.2 per cent, Statscan said.

Total energy exports jumped 8.7 per cent to more than $7.2-billion in July. Crude petroleum accounted for just over a third of all energy exports in July. Crude petroleum exports climbed 7.5 per cent to $2.5-billion, and “the vast majority went to the United States,” the report said.

Natural gas exports account for more than 40 per cent, with the remainder comprised of other energy products such as coal and electricity.

Natural gas exports also surged 15.8 per cent to $3-billion. “Aside from a small decline in May, natural gas exports have increased each month in 2005,” Statscan said.

Imports, meantime, fell.

“Canada's imports declined in all major sectors in July, except automotive products where they registered a 1-per-cent gain,” Statscan said. “This occurred as several companies built up inventories of motor vehicle parts used in the production of popular models.”

Energy imports fell 0.3 per cent in July. Imports of machinery and equipment fell 1.4 per cent, the first decline for this sector in 2005. Imports of other consumer goods fell 2.8 per cent from June's record of $4.2-billion. “A decline in imports of miscellaneous end products, comprised primarily of pharmaceutical products, accounted for the majority of the fall,” the agency said.

July's surplus was the highest level since August, 2004, a Statscan spokesperson said.