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Rebound indicates growth in economy's future: analysts

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OTTAWA -- Canada's export sector began to exhibit signs of a rebound in June, posting a 1.4 per cent gain analysts said sets the economy on the road to stronger growth in the latter half of the year.

The bottom-line trade performance was mildly positive -- the deficit narrowed to $469 million in the last month of the second quarter, but May's negative balance was revised to $781 million from the previously reported $330 million.

The consensus for June had been for a weaker month with a deficit of about $600 million based on the expectation difficulties in the United States stemming from the budget sequester program cutbacks would dampen consumption in the spring and early summer months.

But Canadian exporters posted a strong month. In dollar terms, shipments rose 1.4 per cent to $39.6 billion with metals, motor vehicles and aircraft recording significant increases.

In volume terms, the gain was even bigger at 2.1 per cent, which bodes well for economic output.

Meanwhile, imports increased 0.6 per cent in June to $40 billion, pushed higher by imports of oil and bitumen and aircraft. Prices of imports grew 1.1 per cent, while volumes decreased 0.5 per cent.

Analysts responded positively to the news although they noted the revision of the May data means net trade will be a slight drag on growth in the second quarter, which most now expect to be in the neighbourhood of one to 1.5 per cent.

But with the sequester drag starting to fade, the rebound in exports -- including a 1.5 per cent improvement in shipments to the U.S. -- suggests the growth path of the economy is proceeding as anticipated.

"Going forward, this sort of sets us up well in terms of the hand off and that's what everybody is looking to," said Francis Fong, an economist with the TD Bank.

"Everything is focused on the second half of the year, and hinging on the U.S. economy picking up and us included. This is consistent with that whole story of the second quarter, maybe not so great, but looking forward it does look more positive."

As if on cue, the U.S. also posted a strong trade performance in June, with the deficit narrowing to a three-and-a-half year low to $34.2 billion.

The Canadian dollar moved slightly higher on the Tuesday morning trade reports, inching up 0.13 of a cent to 96.38 cents US.

Economists were looking for a tell in the June numbers as to whether the Alberta flooding would disrupt shipments and activity, an impact the Bank of Canada predicted could -- along with a short-lived Quebec construction strike -- drain 1.3 percentage points from second-quarter growth.

But there was little in the numbers to suggest the flooding played a major role.

Economist Jimmy Jean of Desjardins Capital Markets pointed out energy exports did fall 1.4 per cent, but other commodities saw a surge -- metals rose 11.6 per cent and metal ores 3.4 per cent.

Exports of farm products also fell by 9.4 per cent, but it was the sixth consecutive decline in the sector, Jean noted.

On the positive side, exports of motor vehicles rose 5.5 per cent, and aircraft shipments lifted by a massive 24.2 per cent.

Overall, exports to the U.S. were up 1.5 per cent to $29.4 billion, while shipments to other countries rose 1.4 per cent to $10.2 billion. Imports from the U.S. fell 0.8 per cent to $25.6 billion, while exports to countries other than the United States rose 1.4 per cent to $10.2 billion.


-- The Canadian Press

Republished from the Winnipeg Free Press print edition August 7, 2013 B4

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