Canada trade numbers, which reveal a substantial and worsening current account deficit, have one distinct silver lining: They show Canadian businesses are beefing up their purchases of equipment to make themselves more competitive in the future.
Statistics Canada figures released Monday show the trade deficit widening to a record $17.5 billion in the three months to Sept. 30, as imports outpaced exports for the eighth consecutive quarter. Imports of goods jumped by $3.6 billion, but more than half of that increase was made up by a rise in the value of machinery and equipment coming into Canada.
After a stretch when Canadian business has been criticized -- by Bank of Canada Governor Mark Carney and others -- for low productivity and weak spending on innovation, the new numbers are a reason for optimism that companies are gearing up for investment that could boost our standard of living in the long-term.
Executives across the country agree that they have loosened their pursestrings now that they can see the light at the end of a very dark economic tunnel.
Jonathon Fischer, who recently retired as CEO of Mold-Masters Ltd., a Georgetown, Ont., company that builds equipment used by makers of plastic parts, said that positive market trends are pushing manufacturers to upgrade their plants, despite the typical Canadian reticence to spend money until a turnaround is certain.
After a deep recession in which most spending was put on the back burner, "there has been a resurgence of investment that had been pent up," he said.
This reflects strong orders and a belief that the upturn in the economy is sustainable, Mr. Fischer said. While "bubbles are still bursting" in commercial real estate and in some European countries, there is clearly a new day dawning in manufacturing, he said.
Companies will also likely boost longer-term investments in innovation, he said, which should help the country’s productivity scores. "There’s no question that we will see, sustained through 2011 and 2012, continued spending in research and development."
Economists, looking at the broader trade picture, say Canada’s trade deficit is not a big concern -- yet. But if it continues to grow, it could indicate the country’s economy is out of whack because it is consuming more than it is producing.
There are two broad reasons for the current deficit, according to some experts. First, the U.S. economy is still soft, so customers south of the border are not buying enough goods and services that Canada produces. Second, the high Canadian dollar is making it cheaper for our consumers and business to buy foreign products, and more expensive to sell our stuff outside the country.
While a modest and temporary trade deficit is not necessarily a bad thing, they said, it can become dangerous if it continues to expand and lasts for years.
A regular deficit of more than 3 or 4% of gross domestic product would be "uncomfortably large," one expert said. The third-quarter deficit amounted to about 4.3% of GDP, up from 3.2% in the second quarter.
Still, there’s no indication at the moment that the trade deficit is anything more than a cyclical imbalance, experts said.
