Third Consecutive Rise in Canada's Merchandise Trade Surplus

Canada's merchandise trade surplus was much larger than expected in March and came in at C$5.5 billion - the largest since May 2007. Exports posted another monthly gain, rising 1.6% while imports softened, falling 0.3%. February's surplus was marked down modestly to C$4.8 billion from the preliminary report, which showed a C$4.9 billion gap. Forecasters expected a moderate easing in the surplus to $4.5 billion in March.

March marked the third consecutive monthly increase in Canada's trade surplus with the first-quarter gap being the largest since the second quarter of last year. Exports increased by 1.6% to C$40 billion, the highest since April 2007 while imports stalled, falling by 0.3% to C$34.5 billion, the second monthly decline. The rise in exports in March reflected a rise in prices as volumes were lower. The strength in exports was led by a 6.6% rise in energy products with exports of consumer goods posting a solid 13.4% gain in March. The only two categories to post declines in March were for forestry products and automotive products. In the 12 months to March, exports of forest products fell 25.2% with auto exports down 26.6%.

The decline in imports was fairly broad based although these declines were largely offset by a 17.6% surge in imports in the energy sector which recouped ground after falling by 19.7% in February. Imports of auto products posted their largest decline since August 2003 due to a labour dispute in the U.S. parts supply chain.

However, the export picture on a volumes basis was weaker with a 2.1% dip reported. Imports were also softer on a volumes basis, falling 2.4%. On a constant dollar basis, the deficit narrowed to C$5.13 billion (in constant 2002 dollars) from - C$5.4 billion in February.

While the first-quarter trade data showed that the trade sector likely exerted less restraint on the economy in the quarter than in last year's fourth quarter, the softening in the U.S. economy points to weaker export growth ahead, while the strong labour market performance and Canada's elevated currency will likely support import demand.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.