Canada posted a $4.25 billion trade deficit in January, down from an upwardly revised $4.82 billion deficit in December (previously reported as $4.59 billion). This was higher than consensus estimates for a $3.55 billion deficit. Exports advanced 2.9% to $47.6 billion, lifted mainly by increases in the value of energy product exports (up 14%). Meanwhile, imports were up 1.5%, driven largely by imports of aircraft (+52.6%).
Excluding energy products, exports were up 1.2%. Still, exports of metal and non-metallic mineral products were also strong (+11.9%), driven by higher exports of refined gold to the U.K. and gold transfers to Hong Kong (according to Statistics Canada). Providing some offset was a large decline in farm, fishing, and intermediate food products (-8.1%) due to lower exports of soybeans to China.
After accounting for price changes, the picture was somewhat less impressive. Export volumes were up 0.9%, but were outweighed by a 1.5% increase in import volumes.
Canada’s merchandise trade surplus with the U.S. narrowed to $1.6 billion. Its merchandise trade deficit with the rest of the world narrowed to $5.8 billion.
Key Implications
This wasn’t a great start to 2019, but it could have been worse. The negative revisions to December’s report and the modest export uptick (relative to imports) were disappointing, and will marginally negatively impact our GDP tracking. Nevertheless, it is important to note that a large driver of the increases in import volumes is transitory and likely to reverse.
The rebound in exports (the first since July), and specifically in energy prices, which weighed heavily on trade in the last few months, is encouraging. Looking ahead, exports should get some support from a weak loonie and ongoing demand growth south of the border, but a weakening global growth picture suggests that growth will remain contained to the low single-digits.
