Highlights:
- Canada’s nominal merchandise trade deficit narrowed to $1.9 billion in January from $3.1 billion in December -but controlling for the impact of prices, the volume balance was unchanged.
- Export and import volumes both declined 4%.
- About half the drop in export volumes came from lower energy shipments but non-energy exports also remained soft.
Our Take:
The headline trade deficit narrowed to $1.9 billion in January from the $3.1 billion shortfall in December but only because of a big 4.3% drop in imports and a big increase in the price of Canadian energy exports. Nominal exports declined 2.1% but controlling for the impact of prices, volume shipments fell 4.0% — exactly matching the drop in import volumes and implying no change in the ‘real’ trade balance. About half of the drop in export volumes overall came from a 12% plunge in energy shipments. Non-energy exports also declined about 2%, though, and were down 4% from a year ago. Some weakness in imports was expected — particularly in machinery imports which were reportedly boosted in earlier months as companies rushed to import some machinery ahead of new environmental regulations that kicked in in January. The drop in in January was nonetheless larger than we previously assumed.
The monthly trade data is notoriously volatile and revision prone but weakness in non-energy export volumes is also not really new. There is little evidence that Canadian exporters are really tapping significantly into improving global trade flows to-date. That won’t provide much in the way of encouragement to the Bank of Canada which has been counting on growth in external demand as the global economy improves to offset an expected pullback in household spending growth as interest rates rise. To be sure, the data hasn’t all been bad. The overall economy still looks to be operating pretty close to capacity — with separately released productivity accounts data this morning showing maybe a bit more upward wage pressure in Q4 of last year than the Bank of Canada has been expecting. Nonetheless, mixed economic reports recently leave little urgency for the central bank to hike interest rates later this morning after the 25 basis point hike at the last meeting in January.
