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Canada's June Trade Surplus Rises to Boost Q2 GDP Growth, but US Tariffs May Distort Future Data, Economists Say

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With June's trade data now available, Canadian net exports appear to have shifted from a significant drag in the first quarter to a meaningful boost to second-quarter gross domestic product, TD Economics said in a note after Tuesday's better-than-expected merchandise trade report.

"That should reinforce the narrative that real GDP is expected to rebound handsomely following flat growth last quarter", wrote TD Economist Marc Ercolao in the note.

Canada's merchandise trade surplus edged up to C$3.9 billion in June from C$3.7 billion in May, marking a fourth consecutive monthly surplus as monthly exports rose 0.4% and imports increased 0.2%, according to Statistics Canada. June's surplus topped a C$3 billion estimate provided by Bloomberg.

A surge in gold exports more than offset a decline in energy exports in June, which was largely driven by lower prices. Exports of unwrought gold, silver, platinum group metals and their alloys, a category dominated by unwrought gold, rose 27.9% in June, making the largest contribution to the monthly increase in exports.

June's trade surplus "left net trade tracking a sizable net add to GDP growth in Q2 --- broadly consistent with earlier monthly GDP data that was already tracking roughly a percentage point of upside risk to our own forecast for a 2.2% Q2 GDP gain", RBC Economics said in a note after the data.

Robert Kavcic, senior economist at BMO Capital Markets, echoed that by writing in a note that the trade surplus potentially adds upside risks to his current second-quarter GDP forecast of 3.0% annualized.

Export volumes rose in the second quarter at their fastest pace since the pandemic-driven swings of 2020, providing a key boost to economic activity and reinforcing last week's provisional data showing a rebound in June GDP, said CIBC Economics in a note.

Economists also pointed out that higher imports of processing units and computers in June were likely destined for data centers and rapid expansion of artificial intelligence investments.

"This component is one to watch as Canada belatedly joins the data centre buildout," said KPMG Canada senior economists Daniel Hyun and Peter Shannon in a note.

Export volumes could receive a temporary boost in the coming months as firms front-load shipments ahead of potential US tariffs due to take effect on Aug. 19. However, if implemented, the tariffs would likely weigh on exports afterward.

"Export volumes could see a small bump in the next couple of months if companies potentially impacted by new US tariffs look to front-run their implementation, but there would be a negative effect afterwards if these new tariffs actually come into effect," according to CIBC.

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