EconoFACTS

May 04, 2021 | 09:12

Cdn. Merchandise Trade Balance (Mar.) — Back to the Dark Side

Economist

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Benjamin Reitzes

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Canada's merchandise trade balance swung back into deficit in March, breaking a two-month string of surpluses—the first since 2016. The deficit clocked in at $1.14 bln in the month from an upwardly revised $1.4 bln surplus in February. That still left Q1 with a surplus for the first time in nearly five years, and the largest since 2014. Despite the deterioration, the details of the report were decent. Exports rose 0.3%, with big declines in energy and aerospace. The drop in energy was largely due to a reversal of the spike in natural gas prices (and volumes) caused by stormy winter weather in the U.S., while aerospace pulled back as exports of used aircraft fell to zero. It was a mixed bag otherwise with autos rebounding 10% and consumer goods down about 5%. Note that autos are likely to remain volatile due to the chip shortages that are hampering production. Imports surged 5.5%, pushing them back to early 2019 levels, with across the board gains. Energy (+54%), metals/mineral (+13.5%) and forestry products (+6.8%) led the way. Some of the increase in energy shipments may have been making up for February's Texas storm-driven weakness.

On a volume basis, March exports eked up 0.2%, while imports climbed a meaty 6.8%. For all of Q1, real exports rose 6.6% annualized, while imports were up 4.5%, suggesting that trade will add to GDP growth in the quarter, but much less than expected. And, the big rise in March imports makes for a tough handoff for Q2.

On a related note, the service trade balance stayed around flat with a small $143 mln surplus. Until travel resumes look for this to stay close to balance. Assuming the recent trends in cross-border income flows persist, it looks as though Canada will record a current account surplus in Q1 for the first time since 2008Q3.

Key Takeaway: Despite the deterioration in the trade balance, activity was generally solid, with a few one-time factors holding back exports. Indeed, the strength in imports reinforces that March was likely a very strong month for the domestic economy. April will likely be pretty volatile given the restrictions, but higher commodity prices should provide ongoing support to Canada's trade balance.

Table 1 - Canada — Merchandise Trade

(C$ billions)

Source: BMO Economics, Haver Analytics