Canada's Trade Balance Revitalizes in February
- Canada's Trade Balance reverted back to a surplus in February
- Largely driven by a pick up in demand for automotive products
Canada's international trade balance was revitalized in February, rising from a deficit to a surplus of $125 million. This was a nice breath of fresh air for markets which were expecting the trade deficit of the last two months to continue to widen. The change in the net trade position was driven by a 5.2% increase in exports, as imports grew by a more modest 1.1%. Surprisingly, the rise in exports was driven by a surge in demand from around the globe, as Canada's trade balance improved with all trading partners. Stripping out prices, the volume of exports was up by an even heftier 6.7%. In contrast, the rise in imports was largely driven by higher prices, as the volume of imports remained flat in the month.
While most industries posted sizeable gains in exports, Statisitics Canada attributed about three quarters of the gains to machinery and equipment (+8.4%) and automotive products(+19.8%). It is also important to note that the level of automotive exports is the lowest in almost 27 years. In a number of January data releases we noticed a large increase in motor vehicle inventories. The February trade data suggests that some of these were worked off in the month. In addition, the rise in automotive exports may extend into March, as preliminary data show another uptick, albeit modest, in auto sales. However, in spite of this positive twist, the pop in overall export activity in February only partially offset the massive 10% decline in January, and the level of exports are still down 25% from the peak in July of 2008. Given such low levels, a small rise in the number of shipments can lead to a large percentage increase, relative to the last few years.
On the import side, excluding machinery and equipment and automotive products, imports were down 0.6%, indicating that soft Canadian domestic demand remained in place.
Given the massive job losses in both the Canadian and U.S. economy, as well as continued international financial turmoil it is unlikely that the pick up in demand for Canadian made goods is sustainable moving forward. The employment figures released today showed that the manufacturing sector shed a further 34,000 jobs in March, suggesting that the manufacturing woes continued in that month. The export sector in still on tract to post a 29% annualized decline in the first quarter of 2009, right in line with our forecast. On the other hand, the recent build up of inventories by Canadian businesses suggests that imports will continue to fare worse than exports, which means that Canada may avoid a trade deficit in the first quarter.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
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