Canadian trade deficit widens in February as imports growth surpass exports growth

Canadian trade deficit widened in February to CAD 2.7 billion from January’s CAD 1.9 billion, as the rise in imports surpassed the rise in exports. Imports grew 1.9 percent, whereas exports were up 0.4 percent. In real terms, the picture was slightly changed, as imports rose 1.9 percent and exports grew 0.6 percent.

The rise in imports was broad based, driven by a 15 percent rise in energy products to the highest level since late-2014. Aircraft and other transportation equipment and farm, fishing and intermediate food products also recorded decent rises, while metal ores and non-metallic minerals provided some offset.

Meanwhile, the growth in exports was driven by a 20 percent rebound in volatile aircraft industry and a 5 percent rebound in motor vehicles and parts after plant closures in January. On the other hand, rail transportation issues in Western Canada resulted in a 17 percent decline in farm, fishing and intermediate food products in the month.

Canada’s trade surplus with the U.S. narrowed in the month to CAD 2.6 billion as the 1.9 percent rise in exports trailed the 3.3 percent rise in imports. The nation’s trade deficit with the remainder of the world widened to CAD 5.3 billion with exports down 4.2 percent and imports dropping 0.6 percent.

Trade has started on a weak note in 2018, with February’s report affirming that net trade might be a drag on the economic growth in the first quarter of this year, noted TD Economics in a research report. Still, the overall economic growth is on track to expand 1.4 percent in the March quarter.

Acceleration in the U.S. economic activity and a loonie lingering below 80 US cents might help in rebounding Canada’s trade picture. However, NAFTA renegotiations and worries of a global trade war stemming from protectionist rhetoric from the White House leaves a cloud of uncertainty over the outlook, stated TD Economics. With the Bank of Canada being dependent on data, today’s data is not going to do much to pull them off the sidelines.

“Indeed, given that economic growth in the first quarter is tracking well below the Bank's 2.5 percent forecast and that there is significant uncertainty at present, it is likely to remain on hold in the near term, with another hike unlikely to come before the summer”, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bearish at 155.803, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 27.0558. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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