- Canada’s trade surplus narrowed modestly from $1.2 billion to $1 billion in February. Exports (-2.7% m/m) fell slightly more than imports (-2.4%). The picture was a tad less encouraging after controlling for price effects. Export volumes were down 3.8%, while import volumes declined 3.5%.
- The decline in exports was broad-based, spanning 8 of the 11 industries. It was primarily driven by a slump in exports of metals and non-metallic mineral products (-10.9%) and motor vehicles and parts (-10.2%). A pullback in the aircraft and other transportation equipment category (-20.3%) and metal ores and non-metallic minerals (-26.7%) also contributed significantly to the overall decline. A spike in energy exports (+18.3%) provided some offset.
- The motor vehicles and parts category was the biggest drag on imports, falling 7.8% on the month. The import decline spanned 6 of the 11 industries, with energy products (-21.4%) and metal ores and non-metallic minerals (-16.2%) also exerting a meaningful drag.
- The pull back in February’s exports was not surprising following January’s strong outturn and the unusually strong gains in the volatile aircraft category. Similarly, weakness was expected in auto production due to the global shortage in semiconductor chips.
- The auto sector is expected to continue to act as a headwind to exports in the near term. Still, looking beyond these transitory factors and monthly noise in the data, the overall outlook for Canadian trade, exports in particular, has brightened in 2021. Merchandise exports should remain supported by firm commodity prices/demand, the reopening of economies, and a strengthening economic outlook for Canada’s largest trading partner, the U.S. Recent strength in manufacturing sentiment in Canada and the U.S. data corroborates this narrative.