- Canada’s merchandise trade deficit more than doubled, to $3.3 billion in April, following a $1.5 billion deficit in March. Both exports (-29.7%) and imports (-25.1%) registered their largest monthly drops on record.
- Stripping out price impacts, export volumes shrank 19.9%, and import volumes were down 24.8%. The bigger wedge between nominal and real exports was driven by April’s steep decline in oil prices.
- All but one of the 11 major export sectors saw declines in April. As suspected, the headline decline was largely driven by an unprecedented slump in motor vehicles and parts exports (-82.9%) as auto production plans shut down in both Canada and the U.S. The energy products category (-43.6%) was another large contributor, as COVID-19 sent crude oil demand and prices crashing in April. Most other export categories saw sizeable declines, with the exception of farm, fishing and intermediate food products (-0.4%) and metal ores and non-metallic minerals (+8.3%).
- The drop in imports was also broad-based, spanning 9 of the 11 sectors. Motor vehicles and parts (-77.1%) again contributed the most to the decline. Imports of energy products (-53.6%) were also down sharply. All other categories saw sizeable declines, with the exception of metal ores and non-metallic minerals (+49.6%) and metals and non-metallic mineral products (+5.4%)
- Canada’s merchandise trade surplus with the U.S. narrowed from $3.5 billion in March to $2.2 billion in April. The merchandise trade deficit with the rest of the world widened to $5.4 billion in April (from $5.1 billion in March).
- Statistics Canada also released its monthly trade in services report for April. A 20.5% drop in Canada’s services exports and a steeper 30.7% drop in Canada’s services imports was reported. These declines were disproportionately driven by travel and transportation services.
Key Implications
- April’s steep drop in international trade is consistent with the freeze in economic activity seen both here and globally. With the focus now shifting to the recovery stage, and with many economies gradually re-opening since May, the worst is hopefully in the rearview mirror. Indeed, auto plants in the U.S. and Canada have started to gradually resume production, and the reopening of dealerships has prompted an increase in auto sales in both countries (See our recent note on U.S. vehicle sales in May).
- The expected recovery in international trade will be gradual. With the autos category contributing disproportionately to April’s decline in both exports and imports, a gradual rebound should support a modest improvement in the headline figures starting in May, albeit one that is unlikely to come close to year-ago levels. Other trade categories will also likely continue to lag, as presaged by still-subdued manufacturing PMIs globally. Within services trade, we expect only a slow and protracted recovery as countries by and large keep international borders closed, and consumers remain cautious.
