CANADA DATA: Trade Data Keeps Q2 GDP On Track For A Negative Reading

The slightly smaller-than-expected trade deficit in June keeps Q2 GDP on course to print slightly negative when it's released at the end of the month (Aug 29). 

• June data released by StatCan Tuesday showed the goods deficit widened slightly from a revised figure: at C$5.9B (C$6.3B expected), it was up from C$5.5B prior (rev from C$5.9B). Exports were up 0.9% M/M after 2.0%, rising largely thanks to energy shipments, with imports up for the first time in 4 months (1.4%) due to a one-off factor (StatCan: "in large part the result of an increase in imports of industrial machinery, equipment and parts, for which a one-time high-value shipment was reported in June. Excluding this product section, total imports were down 1.9%"). In volume terms, exports were down 0.6% M/M with imports up 2.0%.
• For the quarter, the services account posted a deficit of C$1.96B in nominal terms, combining with goods' C$19.0B for a grand total of just under $21B - easily a quarterly record.
• On a volumes basis, exports fell 31% Q/Q SAAR on the quarter with imports down 6%. In this sense from a GDP perspective, net exports could subtract 7+ percentage points from the overall GDP growth figure (see chart). Consensus is for a -0.5% Q/Q SAAR reading, after +2.2% in Q1.
• The Bank of Canada's latest Monetary Policy Report has a -1.5% Q/Q SAAR GDP estimate for Q2 which looks pessimistic versus the monthly industry GDP which is closer to flat. However the BOC assumption includes a -6.8pp contribution from net exports (-10pp exports, +3.2pp imports) which isn't reflected in the industry estimate, which may in fact be boosted by the aforementioned industrial machinery investment even as overall GDP is weighed down by large net imports.
• The pullback will be transitory in some respects, even if the BOC expects the jump in cross-border tariffs to permanently impair Canadian output. The BOC published in its "current tariff" outlook scenario: "After falling sharply in the second quarter due to tariffs, exports stabilize in the second half of 2025. They increase modestly over the rest of the scenario horizon as Canadian exporters adjust to the new trade environment. Non-commodity exports remain well below their pre-tariff levels, reflecting the permanent damage done by US tariffs".