Canada’s goods trade deficit narrowed by about half to reach $1.9bn, from a revised $3.9bn in April (previously $4.1bn). The result was better than the narrowing to $3.4bn expected by Bay Street. Exports recorded another increase (+1.6%), led by metal and non-metallic mineral products and consumer goods. Imports fell 2.5% in the month, held back by motor vehicles and parts as well as consumer goods.
The story was little changed after accounting for monthly price changes. In real or volume terms, exports rose by a slightly less pronounced 1.2%. At the same time, imports too fell by a touch less, down 2.4% on the month.
Exports rose for the sixth time in seven months to a record high and are up 3.1% from the same time last year. Shipments of metals and non-metallic minerals increased 9.1%, more than reversing the 7.8% slump experienced in February, helped along by strong sales of intermediate metals including unwrought gold. Consumer good exports were also up a solid 5.4% on the month, led by a one-third surge in pharmaceuticals. Exports of autos and parts was up 1.3% on the month while other transport products (including aircraft) were down 14.2% after two exceptional monthly gains of more than 20% apiece – related to sales of boats and other personal transportation equipment to Saudi Arabia and aircraft parts to the U.S.
Imports declined after two consecutive months of increases. Autos and parts (-5.8%) declined, offsetting two strong months during which the category rose more than 10%. Other transport equipment imports also pulled back, down 3.9% in April, after three consecutive monthly gains. A similar story emerged for consumer goods imports (-4.9%) with the pull-back appearing to be related to past strength.
Canada’s merchandise trade surplus with the U.S. widened for the first time in six months, nearly doubling from $2.0bn to $3.6bn in April on higher crude and bitumen exports and lower auto imports.
Key Implications
This was a solid report all things considered, with a good showing for exports highlighting the improving global demand. At the same time, the pull-back in imports appears more related to unsustainable gains in previous months than a beginning of a worrying trend.
The figures provide further evidence that after some softness in the first quarter, growth in the second quarter has rebounded, with our current tracking pointing to a near-3% pace.
Despite the good monthly print Canadian exporters are in for a rough ride in the coming months, and perhaps quarters. The recently imposed tariffs on aluminum and steel, together with retaliatory Canadian tariffs, will likely hold back movement of metals and metal products across the border and be a drag on economic activity – particularly in Quebec and Ontario. The tariffs also throw a wrench into the already difficult NAFTA negotiations, with any agreement looking less likely over the near-term – something that’s not going to do anything for business confidence on either side of the border.
