Canada’s goods trade deficit widened to a larger-than-expected $2.8bn in May from a slightly revised $1.90bn in April (previously $1.86bn). Exports were flat during the month, weighed on by shipments of motor vehicles and parts as well as metal ores and non-metallic mineral products. Imports rose 1.7%, lifted by aircraft and other transportation equipment and energy products.
In real or volume terms, exports dropped by 1.0% on the back of lower exports of metal ores and non-metallic minerals. Meanwhile, import volumes rose 1.2% on the month.
May’s report marked just the second time in eight months that exports didn’t increase. Shipments of motor vehicles and parts fell 3.6% during the month. A supply disruption of auto parts from the U.S. contributed to a decline in exports of passenger cars and light trucks. Exports of metal ores and non-metallic mineral products also fell significantly (-14.6%), though this decline coincided with work stoppages in iron mines in April and May. On the flipside, exports of aircraft and other transportation equipment and parts advanced a robust 7.8% during the month on the back of exports of transportation equipment to Saudi Arabia. Exports of forestry products and building and packaging materials also saw a notable gain (+3.1%).
Imports advanced 1.7% in May, partially reversing April’s 2.8% drop. Imports of aircraft and other transportation equipment and parts rose 17.7%, the fifth consecutive gain for this category. Statistics Canada noted that the gain was driven by the import of several airliners from the United States. Imports of energy products also contributed to May’s gain as a number of Canadian refineries were temporarily shut down during the month, causing higher imports to meet domestic demand for refined petroleum products.
Canada’s merchandise trade surplus with the U.S. narrowed to $3.3 in May from $3.7 in April as imports advanced 1.0% and exports dipped 0.2%.
Key Implications
On balance, this report provided a “so-so” last look at Canada’s trade picture before the implementation of the steel and aluminum tariffs by the U.S. on June 1st. Export volumes dropped during May, though part of this decline can be put to temporary factors in the automotive and metal ore sectors that could reverse in coming months. Meanwhile, a relatively broad-based gain in imports across categories points to rising domestic demand.
Despite the softer showing for export volumes and a partial rebound in real imports in May, net trade is still on track to add to growth in the second quarter – consistent with our forecast.
The trade picture has become more complicated in recent months, with the imposition of steel and aluminum tariffs by the U.S. government and retaliatory Canadian tariffs likely to weigh on trade of these products and restrain output. Meanwhile, the prolonged NAFTA negotiations continue to add a layer of uncertainty to the trade backdrop. Fortunately, solid U.S. demand combined with a loonie which has lost some steam in recent months should provide some offset to these factors.
