Canada: More Signs of Weakness as Trade Deficit Widens Again
- Canada’s international merchandise trade balance deficit widened from $2.7 billion in May to $3.7 billion in June. This was the largest trade deficit in goods since October 2020.
- The primary driver of the trade deficit in June was a 2.2% decline in total exports to $60.7 billion. Falling prices contributed to broad-based declines. Exports of metal and non-metallic mineral products (-8.0%) led the drop, mostly due to a decline in gold exports that followed several strong months. Exports of industrial machinery, equipment and parts ( -5.0%) and farm, fishing and intermediate food products (-4.4%) were pulled down by declining volumes. In volume terms, total exports fell by a more modest 1.1% in the month.
- Total imports decreased by 0.5% in May to $64.4 billion. Imports of energy products (-13.0%) led the drop due to a decline in both prices and volumes. Excluding the volatile pharmaceutical sector, consumer goods imports (-0.6%) have fallen in three of the last four months. Despite real gains in recent months, total consumer goods imports are down meaningfully versus last year. Meanwhile, imports of industrial machinery, equipment and parts (+1.0%) bounced back up after two consecutive monthly declines. Metal and non-metallic mineral products climbed a hefty 12.9%, dominating export gains and widening the trade deficit in this category, marking the second consecutive month of strong monthly increases.
- Canada’s trade surplus with the US narrowed to $7.4 billion in June from $7.7 billion a month earlier. But the real story was our widening trade deficit with the rest of the world, which deteriorated to an all-time high of $11.2 billion in June.
- Looking to services, Canada’s trade deficit narrowed slightly in May—from $1.1 billion to $1.0 billion—as imports retreated by 0.2% in the month while exports increased by 0.4%.
- Disruptions related to the recent port strike in British Columbia did not impact June 2023 figures but will show up in next month’s data. Statistics Canada also stated that flooding in Halifax could affect July 2023 trade activity.
Today’s trade data didn’t significantly change our tracking of real GDP growth in the 1¼–1½% (q/q annualized) range for Q2 and Q3. Accordingly, it reinforces our view that the Bank of Canada will hold rates steady in September.
Still, today’s trade release shows signs of weakness in the Canadian and global economies. The June decline in export volumes suggests a weaker Q3 handoff for goods-producing sectors like agriculture and resource extraction. On the import side, volume decreases and some softness in consumer goods could be a signal household demand is under pressure from high interest rates and economic uncertainty.
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