Canada’s merchandise trade balance swung to a $2.3 billion deficit in March, while February’s surplus was revised lower to $476 million.
Exports, which fell by 5.3% in March, gave back most of last month’s hefty gain. The contribution to the decline was broad-based, with 9 of 11 sectors falling. Gold and other metal exports continue to swing the headline number, falling by 32.5% month-on-month (m/m). Exports of energy products (-4.9% m/m) and exports of motor vehicles and parts (-6.3% m/m) also contributed to the slide.
Meanwhile, total imports also fell (-1.2% m/m) in March with 7 of 11 product sectors seeing declines. Imports of electronic and electrical equipment fell by 8.1% m/m in March after a sizeable gain last month. Further contributing to the decline was a decrease in metal ores and non-metallic mineral imports (-27.9% m/m), which was partially offset by a 10.8% m/m gain in metal and non-metallic mineral imports.
In volume terms, imports rose by 0.6% in the first quarter while exports were effectively flat.
Canada’s trade surplus with the United States narrowed from $8.5 billion in February to $6.5 billion in March.
Key Implications
Before the release of the March trade data, export activity was shaping up to be a decent tailwind to Q1 growth. However, volatility stemming from trade in gold and other metal sectors combined with revisions to last month’s data suggest trade may turn out to be a net drag in the first quarter. This is meaningful as it puts downside risk to the most updated forecasts for first quarter GDP growth–including the Bank of Canada’s newly revised projections of 2.8%.
March’s data pours cold water on the prospects of a sustained upturn in external demand, as export volumes pulled back sharply. Imports, a barometer for domestic demand, suggests the Canadian consumer is holding up moderately well despite the slight decline in March import volumes. However, over the near term we would expect imports to moderate further as spending patterns weaken over the coming months.
