Canadian International Trade (February 2019)

Canada's trade deficit narrows in February, as imports drop more than exports

• Canada posted a $2.9 billion trade deficit in February, down from a significantly revised $3.1 billion deficit in January (previously reported as $4.25 billion). This was slightly smaller than consensus estimates for a $3.25 billion deficit. Exports fell 1.3% (m/m) to $48 billion, while imports were down 1.6% to $50.9 billion.
• After accounting for price changes, the picture was disappointing. Export volumes dropped a significant 4.1%, whereas import volumes were almost flat on the month.
• Exports saw a broad-based decline across virtually all categories except energy products (up 11.7%, reflecting strong price gains). Excluding energy products, exports were down 4%. Sharp drops were seen in exports of metal ores and non-metallic minerals (-11.0%), metals and non-metallic products (-6.6%), basic and industrial chemical products (-5.4%), and motor vehicles and parts (-2.8%).
• The drop in imports was relatively broad based, but metals and non-metallic products contributed the most to the decrease (down -7.7%). Statistics Canada attributed this to lower imports of gold. Weaker import activity was also seen across other categories, including consumer goods (-1.9%), motor vehicles and parts (-1.9%), electronics and electrical equipment (-3.8%), and industrial machinery and equipment (-3.5%). Increased imports of aircraft and other transportation equipment (+6.2%) and energy products (+3.4%) provided some offset.
• Canada's merchandise trade surplus with the U.S. widened to $3.5 billion. Its merchandise trade deficit with the rest of the world also widened, to $6.4 billion. 

Key Implications

• This was an unambiguously disappointing report. Looking beneath the appealing headline numbers, the significant weakness in export volumes and its broad-based nature (with all major categories dropping) will weigh on economic activity. The import picture was not quite as weak, holding most of January's gains in place. 
• The release is negative for our GDP tracking, leaving it near 0% for Q1. For the broader economy, a range of other releases this week confirm that Canada continued to struggle to find its economic footing at the start of 2019, joining a weak manufacturing sales print and a soft Bank of Canada Business Outlook Survey. 

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