Canadian International Trade (April 2019)

Canada's international trade deficit narrows in April

• Canada posted a $0.97 billion trade deficit in April, down from a revised $2.3 billion deficit in March (previously reported as $3.2 billion). This came lower than consensus estimates for a $2.8 billion deficit. Exports advanced 1.3% to $50.7 billion, while imports dropped 1.4% to $51.7 billion.
• After accounting for price changes, the picture was encouraging, with export volumes up 2%. Import volumes were down 1.9%.
• The increase in exports spanned 6 of the 11 export categories, but was largely driven by a spike in metal and non-metallic mineral products (+15%) which Statistics Canada attributes to a large increase in gold demand. Exports of farm, fishing, and food products were also up (+5.1%) due to a surge in wheat exports. Providing the most offset was a decline in exports of motor vehicles and parts (-4.6%).
• Imports declined in 6 of the 11 product categories and were largely driven by a slump in the volatile aircraft and other transportation equipment category (-23.6%). Providing some offset was an increase in imports of energy products (+10.7%).
• Canada's merchandise trade surplus with the U.S. narrowed to $4.2 billion. Its merchandise trade deficit with the rest of the world narrowed to $5.2 billion.

Key Implications

• April's international merchandise trade data joins a suite of other data releases pointing to improving momentum heading into the second quarter. Indeed, after exports created a substantial drag on GDP in the first quarter, the March and April data point to an improving trade picture and to net trade contributing positively to growth in Q2. Of course, it is important to note that some of the bigger changes this month were in volatile categories (the surge in gold exports and the drop in aircraft imports), but the overall release and trend should still be viewed positively. 
• At the same time, it is important to flag the increasing relevance of trade uncertainty as a downside risk. Affecting Canada recently are issues related to canola shipments to China, which resulted in a 14.7% drop in April. More important, however, are the recent tariff increases (and threats thereof) on Chinese and Mexican goods into the U.S., which may result in spillover effects through confidence and supply chain channels.

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