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Canadian trade deficit narrows in February, weakness in export volumes to weigh on economic activity

Canadian trade deficit narrowed in the month of February. The deficit narrowed to CAD 2.9 billion from January’s revised deficit of CAD 3.1 billion. This was slightly smaller than consensus expectations of a deficit of CAD 3.25 billion. Exports dropped 1.3 percent sequentially to CAD 48 billion, while imports fell 1.6 percent to CAD 50.9 billion. After accounting for price changes, the picture was disappointing. Export volumes fell considerably by 4.1 percent, whereas import volumes were nearly flat on the month.

Exports recorded a widespread fall throughout virtually all categories except energy products. Stripping energy products, exports dropped 4 percent. Sharp drops were recorded in metal ores and non-metallic minerals, metals and non-metallic products, basic and industrial chemical products, and motor vehicles and parts.

The fall in imports was comparatively widespread, but metals and non-metallic products added the most to the fall. Statistics Canada linked this to lower imports of gold. Softer import activity was also seen throughout other categories, including consumer goods, motor vehicles and parts, electronics and electrical equipment, and industrial machinery and equipment. Increased imports of aircraft and other transportation equipment and energy products gave some offset.

Canadian merchandise trade surplus with the U.S. widened to CAD 3.5 billion. Its merchandise trade deficit with the remainder of the world also widened to CAD 6.4 billion. Looking beneath the appealing headline figures, the considerable softness in export volumes and its widespread nature might be a drag on economic activity, said TD Economics in a research report. The import picture was not quite as weak, holding most of January’s gains in place.

“The release is negative for our GDP tracking, leaving it near 0% for Q1. For the broader economy, a range of other releases this week confirm that Canada continued to struggle to find its economic footing at the start of 2019, joining a weak manufacturing sales print and a soft Bank of Canada Business Outlook Survey”, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bullish at 74.3798 while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 101.873 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

By Aditi Awati
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