Canada’s goods trade deficit widened to $4.1B in March (previously $2.9B). Imports rose 6.0% in the month, driven up by motor vehicle and parts and consumer goods. A widespread increase (+3.7%) was recorded in exports, led by aircraft and other transportation equipment. In real or volume terms, exports rose 3.0% while imports rose 5.3%.
After two consecutive months of increases, the import value of motor vehicle and parts has now more than made up the somewhat unexpected decline in January. The strong increase in consumer goods imports in March was broad-based across major product categories, with imports of clothing, footwear and textile products up a robust 16.2%.
The export value of aircraft and other transportation equipment has increased by more than 20% for two consecutive months now. This largely reflected a tripling of sales of boats and other personal transportation equipment to Saudi Arabia in March. In addition, sales of aircraft engines and parts to the U.S. rose 15.2% in the month.
Canada’s merchandise trade surplus with the U.S. narrowed for the fifth consecutive month, falling to $1.7B (previously $2.3B), as higher oil exports were offset by greater imports of motor vehicles. Canada’s trade deficit with the rest of the world widened to $5.8B (previously $5.2B), as imports increased 11.5% while exports rose 11.4%. Notably, imports from China rose 26.6% in the month, largely reflecting imports of computers and computer peripheral equipment and communications equipment.
Key Implications
Despite a strong recovery in export volumes in the last two months of the quarter, the weakness at the start of the year is sufficient to result in exports falling by about 0.4% (quarterly annualized rate) in the first quarter. With import growth of 5.1% (annualized) significantly outpacing export growth in the quarter, net trade is likely to be a material drag on first quarter Canadian economic growth.
Although a NAFTA agreement is looking closer to becoming reality, an agreement in principle is likely still weeks away. Nevertheless, we anticipate that improved momentum, stronger demand from the U.S., and a sub-80 US cent loonie should encourage a rebound in Canadian exports in the second quarter.
