Canadian trade deficit narrows in May on rise in exports

Canadian trade deficit narrowed to CAD 677 million in May, after a revised deficit of CAD 4.3 billion recorded in the prior month. On a sequential basis, exports rose 6.7 percent; however, imports saw a further decline of 3.9 percent. Excluding price impacts, exports were up 3.8 percent, while imports dropped sharply by 6.7 percent.

The rise in exports was widespread, rising in 8 of the 11 major export sectors. Nevertheless, as expected, motor vehicles and parts and energy products were the main drivers of May’s rise, growing 76.2 percent and 14.5 percent, respectively.

The latter was due to both higher oil prices and export volumes. Decent rises were also seen in the exports of consumer goods, aircraft and other transportation equipment, machinery and equipment, and farm, fishing, and intermediate food products.

Imports fell throughout 7 of the 11 major sectors. Driving the headline fall was a slump in the imports of basic, industrial, chemical, plastic, and rubber products. According to Statistics Canada, that was mainly due to a fall in demand for diluents used by the Canadian oil industry in the midst of reduced oil production/transportation. Imports of motor vehicles and parts and energy products also dropped considerably, falling 14.8 percent and 19.5 percent respectively. Higher imports of consumer goods provided some offset.

Canada’s merchandise trade surplus with the U.S. widened to CAD 2.8 billion. The merchandise trade deficit with the remainder of the world narrowed to CAD 3.5 billion. Exports of services saw a further fall of 2.6 percent, whereas imports of services recorded a contraction of 0.6 percent.

“Looking ahead, we are receiving conflicting signals regarding the path for international trade. On the one hand, an encouraging rebound to expansionary territory in U.S. manufacturing sentiment in June bodes well for Canadian firms, especially with the U.S. accounting for a disproportionate share of Canada's exports. That said, the recent spike in new COVID-19 cases south of the border and the resulting halt to reopening plans in some states may slow down the recovery. Separately, the services side of international trade is expected to continue lagging behind as international borders remain closed and governments and consumers remain cautious regarding non-essential international travel”, noted TD Economics in a research report.