- Canada’s international merchandise trade balance switched to a $1.4 billion surplus in January, following a deficit of $2 billion in December. This was aided by a strong 8.1% (m/m) increase in nominal exports. Imports were up 0.9% on the month.
- The gains in exports were still notable after controlling for price effects. Export volumes were up 5.1%. Import volumes climbed a more modest 1%.
- The increase in exports was broad-based, with all 11 industries expanding on the month. A sizeable portion of the strong headline increase was driven by a transitory spike in the volatile aircraft and other transportation equipment and parts (+72.3%) category. Statistics Canada cited that a Canadian airline had retired a large number of aircrafts in its fleet, which were then exported to the United States. Consumer goods (+11.6%) also saw a strong increase in January, though part of it was driven by a surge in gold bar (sold at the retail level) exports to the United States. Energy exports (+5.9%) continued to advance on higher prices and volumes. Similarly, exports of forestry and building materials (+10.7%) continued their winning streak on higher lumber demand and prices.
- The increase in imports spanned 7 of the 11 industries, with the headline increase largely driven by greater energy imports (+20.5%). Imports of industrial machinery and equipment were up 3%.
- Canada’s merchandise trade surplus with the U.S. widened to $6.2 billion (from $2.5 billion in December). This is the largest trade surplus with the U.S. since late 2008. Meanwhile, Canada’s merchandise trade deficit with the rest of the world widened to $4.8 billion (from $4.5 billion in December).
- Statistics Canada also released its monthly trade in services report for the month of January. Services exports were up a modest 0.5%, whereas services imports increased by 2.7%.
Key Implications
- January’s strong international trade report joins a list of other indicators in suggesting a better-than-expected start to 2021 for the Canadian economy. It is important to highlight that part of January’s export strength is transitory, including sizeable contributions from the volatile aircraft component and unusually high transactions of retail gold bars. Still, excluding these components would leave exports (nominal) up more than 4% on the month. In particular, Canadian exports have recently been aided by strong momentum in global demand and prices for some commodities.
- Although caution remains warranted, the outlook for international trade continues to improve. Manufacturing sentiment in the U.S., Canada’s largest trading partner, continues to rise unabated. A fast vaccination pace and the expectation of substantial fiscal stimulus south of the border bodes well for Canadian exports. The fly in the ointment for international trade is the services sector, which will continue to act as a drag until travel restrictions are lifted and health concerns dissipate.
