Canadian Merchandise Trade Returns To Deficit In April

: Canada’s merchandise trade balance fell into deficit for the first time in six months in April. The CAD 367 million deficit was a result of falling exports (-1.2%) and rising imports (+0.1%). There were declines in export revenues for energy, industrial goods, machinery and equipment which more than offset increases in autos. There was a lower import bill for energy products, but that was offset by increases in several other categories. Overall, the energy trade balance rose CAD 224 mn but that was dwarfed by the CAD 744 mn widening of the non-energy trade balance (top chart). In real terms exports rose 0.7% while imports fell 0.1%.

Opinion: The trade report in Canada was better in the details because the drop in exports was entirely due to lower prices. The second consecutive monthly increase in export volumes means that real export growth is now tracking +4.9% in Q2, close to Q1's +5% (middle chart). There is room for further improvement, with autos in particular expected to bounce back in light of strong vehicle sales and low auto inventories in the US.

That said, recent trade trends with our largest trade partner haven’t been good, at least in nominal terms. Exports to the US, which accounts for roughly 73% of Canada’s total goods exports, have dropped for four straight months (bottom chart) and so has our nominal trade balance with America. Low prices are likely to blame but going forward our volumes too could struggle. We’ll be hoping for an improved US nonfarm payrolls and hence better demand stateside.

Another area of concern perhaps is Canada’s investment spending. While we won’t make much of the 1.7% drop in real imports of machinery of equipment, because that came after a 4.5% increase in the prior month, we’ll be hoping for a rebound soon. Else the resurgence in business investment that we saw in Q1 may be cut short.