Canadian Merchandise Trade (May 2024)

Canada's trade deficit widened in May

• Canada’s merchandise trade deficit widened to $1.9 billion in May from $1.3 billion in April, as exports declined further than imports. 
• Merchandise exports declined by 2.6% in May, more-than-reversing April's solid advance. Declines were broad-based, with shipments down in 8 of 11 sectors. Exports suffered steep declines in metal and non-metallic mineral products (-7.0% m/m) on lower shipments of gold. Lower prices dragged down exports of energy products (-2.4% m/m), and exports of aircraft and other transportation equipment (-11.5% m/m) and metal ores and non-metallic minerals (-13.3% m/m) both declined after an atypically strong April in both categories. 
• Merchandise imports declined 1.6% m/m in May, following a similar-sized gain in April, and were down in 6 of 11 product categories. Imports of metal and non-metallic mineral products were down 10% m/m, while imports of energy products also registered a steep drop (-11.6% m/m). Imports of motor vehicles and parts also declined (-4.4% m/m), pulling back after three consecutive gains. 
• In volume terms, merchandise imports declined by 1.3% m/m in May while merchandise export volumes dropped by 1.7% m/m. 
• In contrast to the total, Canada's merchandise trade surplus with the United States widened from $7.1 billion in April to $8.2 billion in May.
• Meanwhile, the trade in services deficit narrowed slightly to $1.0 billion in May, as a mild gain in exports (0.5% m/m) was paired with a dip in imports of services (0.2% m/m).

Key Implications

• Although international trade data is notoriously volatile, so far in the second quarter export volumes have shown a sizeable decline while import volumes were flatter. This suggests that trade will subtract from growth in Q2, in contrast to the small positive contribution we had expected in our June forecast. That said, the picture should brighten up a touch moving forward as the official startup of the Trans Mountain Pipeline in May increases oil export capacity.
• Inflation-adjusted imports of consumer goods declined in May and are tracking a drop so far in the second quarter. This squares with the performance of other indicators, such as retail spending, which point to a subdued second quarter for the Canadian consumer. This is consistent with our view.           

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