Canada’s trade deficit widened from $5.5 billion in May to $5.9 billion in June.
Exports rebounded for a second consecutive month, albeit modestly (+0.9% m/m). This still leaves Canadian exports almost 10% lower than March’s pre-plunge levels. Exports to the U.S. also jumped (3.1% m/m) for a second consecutive month. Export growth was seen in 6 of 11 product sections, with shipments of energy products (+3.8% m/m) making the largest contributions. A 3.8% m/m decrease in metal and non-metallic exports and double digit drops in steel & aluminum exports tempered the headline gain.
Goods imports on the other hand were up 1.4% m/m in June after three consecutive months of contracting. Notably, the gain was very narrowly-based, with a majority coming from sizeable 27.7% m/m increase in industrial machinery, equipment and parts imports.
In volume terms, merchandise exports were down 0.4% m/m while imports increase 1.5% m/m in June.
Canada’s merchandise trade surplus with the United States widened slightly to $3.9 billion as of June, as exports gained more than imports.
Exports to countries other than the United States pulled back slightly but remain elevated at ~30%.
Key Implications
With a full quarter of trade data in the books, net trade is expected to put a substantial dent into Q2 GDP growth, something we had anticipated for several months. Trade weakness and broader trade uncertainty show no signs of abating–not least due to Canada and U.S.’ inability to strike a new trade deal last week leading to a higher 35% tariff on some goods. On a positive note, Canadian export rotation into non-U.S. markets is appearing to have some staying power, a trend policymakers would like to see persist.
It is hard to fall off the floor, and Canadian exports are widely expected to slowly continue their bounce back from the lowest level in nearly five years in April. It is the sectors impacted by tariffs– steel, aluminum, autos, and energy–that continue to disproportionally bear the brunt of the shock. Meanwhile, we may be nearing the upper-end of USMCA compliant exports, as the compliance rate of Canadian goods crossing the border has flatlined at around 60% for the last three months.
