Canadian International Trade (June 2019)

Canada posts a surprise trade surplus in June

• Canada saw a second monthly trade surplus of $0.13 billion in June. This was down slightly from May's $0.56 billion surplus (initially reported as $0.76 billion), and was larger than Consensus estimates for a $0.3 billion deficit. Both exports and imports fell, with a larger drop-off reported in exports (-5.1%) than imports (-4.3%)
• Stripping away price impacts, notably a significant drop in crude oil export prices, export volumes were down a more modest 2.2% in June, whereas import volumes fell 3.6%.
• On the export side, much of the story was one of reversals from May's strong gains. Aircraft and other transportation equipment shipments fell 25% on weaker sales of aircraft, but were still up 12% on the quarter as a whole, with volumes nearly as strong. For the sector as a whole, the price story (-3.6%) was key: energy product shipments rose 4.7% in volume terms, for instance, while the nominal value of these shipments dropped 7.5%.
• The import drop was seen across most major categories. The volatile aircraft and other transportation equipment category was a key driver here as well, down 25.8% after a 19.8% rise in May. Energy product imports fell for a second month, down 14.8% in June (-11% in volume terms).
• Canada's nominal goods trade surplus with the U.S. fell slightly, to $5.7 billion, as energy shipments led to a bigger drop in exports than imports. Reversals of earlier one-off gains (notably shipments to Saudi Arabia) led to a widening of the non-U.S. goods trade deficit, to $5.5 billion in June (from $5.3 billion).
• Notably, June was the first full month following the end of bilateral tariffs on steel and aluminum products between Canada and the U.S. Statistics Canada reported a pronounced climb in exports of steel and aluminum products, while imports in categories previously subject to tariffs were down.

Key Implications

• Volatility seems to be the name of today's game. Just as aircraft and a few other noisy categories helped deliver a robust May report, they were key factors in the more muted report today. Looking through the noise, the second quarter as a whole was a solid one for Canadian exporters, with volumes up almost 15% (annualized). Import demand was much weaker, down 3.2% on the same basis, perhaps a reflection of elevated domestic inventories.
• Net exports are set to be a growth contributor for the second quarter, consistent with our tracking of 3.0% overall economic growth. The softer end to the quarter suggest a more modest profile is to be expected going forward.
• Indeed, with President Trump putting the U.S.-China trade conflict back on the boil yesterday, global trade uncertainty is likely to remain for some time to come. While fundamental conditions remain supportive of trade, the backdrop of negative sentiment suggests a note of caution is needed in assessing the path forward.

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