Highlights:
- Canada’s nominal trade deficit widened to $2.7 billion in February from $1.9 billion in January. A modest 0.4% increase in exports was more than offset by a 1.9% jump in imports. The rise in imports was broadly based but led by a significant, volume-driven increase in energy imports.
- Both aircraft and motor vehicle exports rebounded in February. The latter reflected the end of “atypical plant closures” that weighed on exports in the prior month.
- A 17% decline in agricultural exports, reportedly due to rail transportation issues in Western Canada, partially offset stronger shipments in the transportation sector.
- Machinery and equipment import volumes were relatively flat in February. That followed a sizeable decline in January after purchases were brought forward into 2017 ahead of a change in environmental regulation.
Our Take:
As is often the case with Canada’s trade data, some sizeable swings in individual product categories made for a noisy report. On the import side, a significant jump in energy imports accounted for more than half of the widening in Canada’s trade deficit in February. On the export side, transportation difficulties were reportedly behind a sharp drop in agricultural shipments. In January it was a shutdown in the auto sector that temporarily weighed on exports. On balance, imports are roughly flat so far this year relative to last quarter while exports have declined sharply. That points to net trade once again acting as a drag on GDP growth in Q1/18.
Growth in Canada’s non-energy exports has been disappointing for the better part of two years now. Concerns about US trade policy might be weighing on the sector somewhat, and recent reports of progress in Nafta talks suggest that headwind could soon ease. But trade uncertainty can hardly account for Canada not being able to take advantage of the recent upswing in global growth and a strong economy south of the border. Competitiveness challenges likely deserve some of the blame for export underperformance, and that is a headwind that won’t soon abate. So outside of a rebound in exports in Q2, we are expecting only limited support to the economy from trade going forward.
