Canada’s trade deficit narrows in April; but net trade unlikely to contribute to growth in Q2

In April, Canada’s exports grew 1.5% to $41.8 billion, according to Statistics Canada. For the April month, the nation recorded trade deficit of $2.9 billion, narrowed from March’s deficit of $3.2 billion. Prices of exports grew 1.1%, whereas in terms of volume, exports rose 0.5%. Meanwhile, imports grew 0.9% to $44.7 billion, whereas in terms of volume and prices, it rose 0.8% and 0.1% respectively.

In spite of the growth in exports, the larger rise in imports signifies that net trade will weigh on Canada’s economic growth in the month said TD Economics in a research report. Also, a severe drop in volumes of export in the previous two months has given a weak handoff for Q2 as a whole. Furthermore, the disturbance to oil and gas sector of Alberta due to wildfires is likely to disturb the data for May and June. Overall net trade is not expected to positively contribute to the economic growth in Q2 after it contributed largely in Q1, added TD Economics.

Certain industries helped drive growth in exports in April. Industrial machinery, equipment and parts grew the largest in 15 years at 10.5%. Meanwhile, energy products grew 7.6%. Aircraft and other transportation equipment and parts exports dropped 10% in April, after growing sharply in the previous two months.

Meanwhile, imports of aircraft and other transportation equipment and parts grew 52% to a record $2.2 billion in April, mainly driving the overall rise in imports, noted Statistics Canada. Also, 5.9% rise in imports of energy products to $1.7 billion helped drive the overall growth in imports. However, a decline of 5.1% in imports of industrial machinery and equipment to $4.1 billion partially offset the overall gains.

According to Statistics Canada, imports from the United States grew 3% to $29.7 billion and exports increased 2.3% to $31.3 billion in April. Canada's trade surplus with the United States narrowed from $1.7 billion in March to $1.6 billion in April. On the other hand, the country’s trade deficit with the other nations narrowed due to higher exports to other nations.

Overall, the fundamentals continue to be in place for a rebound in export activity. Production in Alberta’s fire affected region, especially the oil sands, has restarted. This might result in higher exports. In the mean time, the CAD is likely to be in the mid-to-high 70 US cent range in the rest of 2016, according to TD Economics. Also, demand from the US is expected to remain strong. All the factors signify that Canada’s trade sector is expected to perform better in H2 2016, noted TD Economics.