Highlights:
- Canada’s nominal trade deficit widened to an eye-catching -$4.14 billion in March — marking a new record high and up from the -$2.9 billion shortfall in February.
- Exports were up 3.7% overall and 3.1% excluding a large 14.7% bounce-back in agriculture exports after a plunge in February that was likely tied to rail transportation backlogs in western Canada.
- Imports surged 6.0% — and, in a positive sign for Canadian business investment, included higher imports of machinery and equipment.
Our Take:
The -$4.14 billion monthly trade deficit in March was much wider-than-expected and marked a new record high. The deficit is certainly eye-catching but the details look much less alarming in terms of underlying growth implications. The deterioration was entirely driven by a relatively broadly-based 6.0% surge in imports. A 3.7% jump in exports was also stronger-than-expected, and only partly because agricultural exports bounced back 14.7% after rail backlogs pushed shipments in the sector down 14% in February. Exports were still up 3.1% excluding agriculture to build on a 1.2% February rise.
Net trade still looks likely to subtract more than a percentage point from Q1 GDP growth but driven largely by higher imports. That argues underlying domestic demand remained relatively strong in Q1 — a view backed up by the continued solid performance of labour markets in 2018 to-date. With the March data, exports actually came in somewhat stronger than expected for Q1. Still down in volume terms but only slightly and despite transportation disruptions and earlier transitory shutdowns in the auto sector. We continue to expect overall GDP rose a ‘trend-like’ 1.8% in Q1/18. With the economy already at capacity, we expect further underlying improvement in the economic backdrop will ultimately be strong enough to warrant the further gradual withdrawal of still highly-stimulative conditions going forward.
