COVID-19 drives a sharp fall in Canadian trade in March, but the worst is yet to come
- Canada posted a $1.4 billion merchandise trade deficit in March, up from a revised $893 million deficit in February (previously reported as a $984 million deficit). The widening in the deficit was driven by a 4.7% drop in merchandise exports (m/m). Imports also fell 3.5%.
- The declines on both sides of the ledger were driven by volumes. Export volumes were down 4.8%, and import volumes shrank 5.8%.
- Statistics Canada also cited that the drop in nominal exports and imports was lessened by the impact of a lower Canadian dollar. Expressed in U.S. dollars, exports were down 9.2%, with imports down 8.1%.
- The drop in exports was broad-based, spanning 7 of the 11 major sectors. This was largely driven by energy (-7.4%), motor vehicles and parts (-14.4%), and aircraft and other transportation equipment exports (-24.8%). This was expected as many North American production plants shut down in the second half of March. Providing some offset were increases in agricultural and food exports (+12.1%), metals and non-metallic mineral products (+2.1%), and consumer goods exports (+0.7%).
- The slowdown in imports also spanned 7 of the 11 categories, and was also largely driven by the same three disproportionately impacted sectors – energy products (-5.2%), motor vehicles and parts (-13.1%), and aircraft and other transportation equipment (-17.1%).
- Canada's merchandise trade surplus with the U.S. narrowed from $4 billion in February to $3.9 billion in March. Its merchandise trade deficit with the rest of the world widened to $5.3 billion (from $4.9 billion in February).
- Statistics Canada also released statistics on monthly trade in services, which showed a 7.2% drop in services exports and a 11.5% drop in services imports. Exports of travel services were down 21.2% in March, while exports of transportation services were also down 16%.
Key Implications
- International trade is entering uncharted waters as most major economies come to "sudden stops" and supply chains face major disruptions. March's data doesn't fully capture the impacts of these disruptions, with many economies only starting their social distancing efforts and lockdown restrictions in the second half of the month and through April. We should expect another leg down in both sides of the ledger in April as these measures become more widespread globally.
- Following April, and with many economies recently starting to ease restrictions, the picture may start improving. However, clouds will continue to hang over the sector as the fallout from the unprecedented shock continues to weigh on demand. Importantly, sectors within the services industry (such as travel services and air travel) will continue to linger behind for the foreseeable future, weighing on overall international trade.
- For Canada, the unprecedented oil price shock will continue to impact nominal exports, and importantly its terms of trade and incomes. With significant production shut-ins announced in the sector, the impact will also be felt in lower export volumes.
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