Positive net exports (when exports are higher than imports) contribute to economic growth, something that is intuitively easy to understand. More exports mean more output from factories and industrial facilities, as well as a greater number of people employed to keep these factories running. The receipt of export proceeds also represents an inflow of funds into the country, which stimulates consumer spending and contributes to economic growth.
On other hand, a high level of imports might also indicate robust domestic demand and a growing economy. It’s even better if these imports are mainly of productive assets like machinery and equipment, since they will improve productivity over the long run.
Canada, however, is currently facing a Trade deficit meaning the Exports are less than the Imports.
According to StatsCan, Canada's exports declined 0.6% in May while imports edged up 0.2%. Export volumes decreased 2.5% and prices increased 1.9%. Meanwhile, import volumes were up 0.3% and prices edged down 0.1%.
As a result, Canada's merchandise trade deficit with the world widened from $3.0 billion in April to $3.3 billion in May. This means, whatever we produce or manufacture for export can be bought from other countries at a cheaper price.
So, hiking interest rates too soon would result in a stronger loonie (dollar), dampened Canadian Exports even more and put jobs at risk.
