Canada's merchandise trade balance returned to deficit territory in May
- Canada recorded a merchandise trade deficit of $1.4 billion in May, following a surplus of $462 million in April. Merchandise exports fell 1.6% (m/m), whereas imports increased 2.1%. The picture was even less encouraging after accounting for price effects, with export volumes down 3.1% and import volumes up 2.5%.
- The decline in exports was broad-based, spanning 8 of the 11 industries. Once more, headwinds in the motor vehicles industry weighed on exports (with exports of motor vehicles and parts down 5.8%). Statistics Canada cited that the impacts of the semiconductor shortage on Canadian auto production were less drastic during the month, but a greater share of output destined for domestic consumers and exchange rate effects dampened exports during the month. Consumer goods exports were also down a sizeable 8.8%, led by a pull back in packaged seafood products following an unusually strong outturn in April. Strength in forestry product exports (+8.9%) and aircraft and other transportation equipment exports (+14%) provided some offset.
- Imports increased in 7 of the 11 industries. Imports of metals and non-metallic mineral products (+17.7%) led the overall increase. Exports of consumer goods (+4.8%) were also strong.
- In a separate release, Statistics Canada revealed that services exports were down 0.1% on the month, whereas services imports increased 0.7%.
Key Implications
- Notable weaknesses in Canada's exports extended into May, with the overall softness in the past few months largely reflecting disruptions in the motor vehicle industry amid lingering global shortages for semiconductor chips. The one silver lining in May's report is the solid increase in import volumes, which points to recovering domestic demand.
- We continue to receive mixed signals on the outlook for trade going forward. Strength in the U.S. economy and the vaccine-led reopening of economies elsewhere should keep demand for merchandise goods on a solid footing. However, the recovery in service exports is expected to lag until travel/international tourism restrictions are eased. Supply chain disruptions are still being reported in manufacturing PMI surveys, suggesting continued volatility in the data going forward.
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