Economists: Canada’s trade deficit matters more than slowing job creation
By Erica Alini - Friday, April 5, 2013 - 0 Comments
To recap:
- Canadian employment dropped by 55,000 jobs in March, roughly as much as it had risen in February. The unemployment rate climbed up to 7.2 per cent from seven per cent in the previous month. Most of the jobs lost were full-time and from the private sector. Manufacturing was the biggest losers, shedding 24,000 positions, the third consecutive month of declines.
- Canada’s trade deficit widened to $1 billion in February, up from a revised $746 million in January. Exports dipped 0.6 per cent, reversing two consecutive months of growth. Imports inched up 0.1 per cent. In terms of volume, exports declined 0.6 per cent and imports 0.4 per cent.
- U.S. employment posted a modest gain of 88,000 jobs in March, the smallest increase in nine months. The reading was in line with other economic indicators out last month hinting that the bout of growth of the first three months of the year is coming to an end. Unemployment declined to 7.6 per cent from 7.7 per cent, but the dip was driven by more Americans giving up on the job search and thus dropping out of the government’s unemployment head count.
- The U.S. trade deficit narrowed to a better-than-expected $43 billion in February 2013 from a revised $44.5 billion in January. In terms of volume, exports were up 0.2 per cent and import down 0.3 per cent.
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What the analysts say: Canada and the U.S.’s trade balance
By Erica Alini - Friday, January 11, 2013 at 12:37 PM - 0 Comments
To recap:
- Canada’s trade balance: The deficit grew nearly fourfold in November compared to October, rising to $2bn. Canada imported more (largely electronics—and particularly cellphones—and cars) and had to sell abroad for cheaper due to falling prices for many of our key exports.
- The U.S.’s trade balance: The U.S. trade deficit also widened (to nearly $49bn, up nearly 16 per cent from October), also largely on the back of strong imports of cars, smartphones and other electronics. Exports inched up by only one per cent, hurt by weak demand from Europe.
What the analysts are saying: Continue…
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The trade deficit (or rather, current account deficit) is now the second-widest on record
By Erica Alini - Thursday, November 29, 2012 at 12:00 PM - 0 Comments
(Andy Clark/Reuters)
Canada’s current account deficit grew to $18.9 billion between July and September, up from $18.4 billion in the previous quarter, Statistics Canada reported today. It was the second-widest deficit on record.
Now, the association of the words “deficit” and “widest” sounds like very bad news. But before you start pulling your hair out, let me point you to this piece by Stephen Gordon on Econowatch about how a current account deficit doesn’t necessarily spell doom for economic growth. You might also want to look at this other post by Stephen, and particularly his chart showing how, once you plot the current account balance as a share of the economy, the current deficit levels, while still large, are not at record levels.
Having cleared the air on that one, let’s take a look at today’s release and whether it really contains anything we should worry about.
I’m going to look at the trade balance first (the different between exports and imports) and then focus on net income flows (the difference between profits earned on Canadian investments abroad and those on foreign-owned investments in Canada) as per the current account equation, which goes like this:
Current account balance = trade balance + net investment income flows.
Here’s today’s release in a nutshell:
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Unleash the line graphs
By Aaron Wherry - Friday, September 21, 2012 at 1:50 PM - 0 Comments
Stephen Gordon tackles the current account deficit question.
Eventually, the current account will adjust: government budget balances will continue to improve, and savings levels will improve as incomes recover and when interest rates start increasing back to normal levels. But if the NDP wants to claim that a large current account is a problem, I’d like to know what they would have done differently during the recession and recovery and how it would have reduced the current account deficit. But more importantly, I’d like to know why they see it as a problem to be solved.
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About that record current account (not trade) deficit
By Stephen Gordon - Thursday, September 20, 2012 at 5:22 PM - 0 Comments
Here is Tom Mulcair’s first question in Monday’s Question Period:
Mr. Speaker, Canada’s economy is still in difficulty despite the Prime Minister’s boasts. The Conservatives have set a new record with a trade deficit of $50 billion. Hundreds of thousands of manufacturing jobs have vanished—high-quality, high-paying jobs. The artificially high Canadian dollar is hurting export industries. Household debt has never been so high and productivity has never been so low. Does the Prime Minister realize that it is time to change his economic strategy?
As Maclean’s Aaron Wherry notes, the Conservatives are complaining that the NDP got the numbers wrong. It turns out that the $50 billion number is for the annual current account deficit, not the trade balance. As Aaron also notes, the distinction goes like this:
Current account balance = trade balance + net investment income flows
That last item—the difference between the profits Canadians earn on investments abroad and the profits earned on assets located in Canada sent back to foreign owners—is worth about $20 billion these days. Even so, I’m not inclined to score that as a CPC ‘gotcha’. Economists will often use the terms ‘trade deficit’ and ‘current account’ interchangeably in informal discussions. There are times when it’s crucial to make the distinction; this wasn’t one of them. Tom Mulcair made the correction in his speech today, and it didn’t change his point.
The more fundamental problem isn’t the number; it’s the fact that the NDP sees a current account deficit as a problem in the first place.
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About that trade deficit
By Aaron Wherry - Thursday, September 20, 2012 at 11:58 AM - 0 Comments
On Monday, Thomas Mulcair blamed the Conservatives for a $50-billion “trade deficit.” The Conservatives subsequently complained that Mr. Mulcair had his numbers wrong.
Mr. Mulcair’s reference to a “trade deficit” is apparently a reference to the “current account” deficit. (When I asked, the NDP directed me to this analysis.)
But, as it has been explained to me, the “current account” is a figure that is arrived at by adding the current trade balance to the net flow of investment income.
I’ve asked Stephen Gordon to explain the significance and meaning of all this to
meus and he will hopefully have a post up at Econowatch soon. -
What Canada’s current account deficit says about our vulnerability to a global slowdown
By Andrew Hepburn - Thursday, September 13, 2012 at 10:55 AM - 0 Comments
Budget deficits, whether provincial or federal, tend to get all the press. The other big Canadian deficit—the current account deficit—usually flies well under the radar. Until this week, that is, when Statistics Canada released numbers indicating that our trade deficit with the world expanded from $1.9 billion to $2.3 billion in July.
The current account surplus or deficit is a measure of a country’s trading relationship with the world. You’ve probably heard of a key part of the current account, the trade balance, or exports minus imports. In addition, the current account also measures net investment income, i.e. interest earned from foreign holdings minus interest paid to foreigners, and net financial transfers over a given period.
Canada’s current account balance is significantly in the red. To be precise, as of the second quarter of 2012, our deficit has reached 3.6 per cent of GDP on an annualized basis. As BMO’s Nesbitt Burns noted, this represents a marked deterioration from the 2.8 per cent deficit recorded in 2011. Canada, they wrote, has only seen two years—1975 and 1981—when the current account deficit exceeded 4 per cent of GDP. We’re close what have typically been extreme readings.
Many experts, including economists at BMO, National Bank and the OECD have pointed to the strong Canadian dollar as responsible for much of the deterioration in Canada’s trade balance. The value of Canada’s net merchandise exports have declined precipitously from almost $70 billion in 2001 to barely above zero in 2011. That number is now negative.
Chart: National Bank
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What does a trade deficit mean for GDP? Not much.
By Stephen Gordon - Tuesday, September 11, 2012 at 3:18 PM - 0 Comments
Statistics Canada’s latest release for the international merchandise trade balance shows that the trade deficit widened in July, and this is being interpreted as a sign that GDP growth will come in lower than previously thought. This might seem to be an obvious implication of a widening trade deficit when you decompose GDP into its spending components:
GDP = Consumption spending + Investment + Government spending + Net exports
Everything else being constant, a fall in net exports reduces GDP. But one of the dangers of reasoning from national accounts identities is that everything else isn’t always held constant. Here’s another national accounts identity:
Investment = Saving + Government surplus – Net exports
(I should be using the current account instead of net exports here, but this is close enough for my purposes.) Everything else being constant, a fall in net exports increases investment—and, as you can see in the first accounting identity, investment shows up as a positive contribution to GDP. Saying that Canada’s trade deficit widened is the same thing as saying that foreigners increased their flow of savings into Canada—and investment spending is financed out of savings.
