EconoFACTS

July 06, 2023 | 09:08

Cdn. Merchandise Trade Balance (May) — Big Swings

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Canada’s merchandise trade balance deteriorated in May, swinging to a $3.4 billion deficit from an $894 million surplus in the prior month (previously pegged at $1.9 billion). Keep in mind these data can swing and get revised pretty wildly.

Exports fell 3.8% in May, as declines in most resource categories were partly offset by higher auto shipments. Imports jumped 3.0%, led by metals, minerals and autos.

In volume terms, exports fell 2.6%, while imports jumped 3.8%. Clearly that’s a negative combination for the real trade balance, and May in fact saw the second biggest deterioration in that balance since at least 1997. But… and this is an important but: Our growth forecast was banking on some negative revisions and month-to-month deterioration, so this actually helps square up our Q2 real GDP growth call for Canada. That is, what was a significant upside risk to our call is now scrubbed out with trade looking about neutral.

Meantime, the services trade balance was much steadier in May, with the deficit narrowing very slightly to $1.1 billion. Interestingly, the travel balance is almost right on neutral with both exports (i.e., visitors coming to Canada) and imports (travelers abroad) steadying in recent months. Recall that before the pandemic, Canada was a persistent net importer of travel services.

The Bottom Line: Trade numbers have a habit of swinging wildly, and this report is a clear example. From the perspective of our near-term growth outlook, the deterioration in merchandise trade flows suggests that net exports will contribute little to GDP growth, consistent with our call for Q2.

Also, while we're still two months away from seeing July trade data, our eyes are on the B.C. port strike to assess the length of disruption in trade that results. As we noted yesterday, roughly 20% of total Canadian goods trade runs through those ports, which presents the possibility of short-term growth hiccup, as well as another (hopefully very temporary) supply-chain disruption. Major outbound shipments include grain, forest products and potash; large inbound volumes include consumer goods and autos.

Table 1 - Canada — Merchandise Trade

(C$ billions)

Source: BMO Economics, Haver Analytics