CA: Merchandise Trade

Tue May 05 07:30:00 CDT 2015

Consensus Actual Previous Revised
Level C$-0.80B C$-3.02B C$-0.98B C$-2.22B
Imports-M/M 2.2% -0.7%
Imports-Y/Y 6.8% 4.3%
Exports-M/M 0.4% 0.4%
Exports-Y/Y -3.1% 0.5%

The merchandise trade balance remained comfortably in the red at the end of last quarter. In fact, at some C$3.02 billion, the shortfall was not only much larger than expected but also a new record. To make matters worse, March's sharp deterioration followed a significant upward revision to February's deficit which now stands at C$2.22 billion. The trade account has now been in the red for six consecutive months and has worsened every month since last November.

The slide in the headline reflected a modest 0.4 percent monthly increase in exports that was easily more than eclipsed by a 2.2 percent surge in imports. However, price volatility was again marked and export volumes were up 1.9 percent, 0.4 percentage more than imports.

The bilateral black ink with the U.S. actually widened from C$1.95billion to C$2.18 billion as sales across the border dropped a monthly 0.9 percent while imports declined a steeper 1.7 percent.

Within the overall monthly gain in exports, energy nosedived 8.9 percent and, without this category, would have expanded a healthy 2.4 percent. The other main falls were in aircraft and other transportation equipment and parts (9.9 percent) and electronic and electrical equipment and parts (2.2 percent). However, strong advances were recorded in motor vehicles and parts (11.7 percent), basic and industrial chemical, plastic and rubber products (5.3 percent) and metal ores and non-metallic minerals (7.4 percent).

Imports were helped by consumer goods (7.9 percent), energy products (2.3 percent) and basic and industrial chemical, plastic and rubber products (3.4 percent). Farm, fishing and intermediate food products (4.5 percent) and autos (3.7 percent) also performed well.

Oil prices bottomed in March (at least for now) and the C$ had already made back useful ground in recent weeks in response to their partial recovery. Today's data will not go down well but the importance of the swings in prices should not be underestimated. Export volumes rose a quarterly 0.6 percent in the period just ended while real imports fell 0.2 percent. This will provide some support to first quarter GDP growth. The March trades are clearly disappointing but it is certainly not all bad news.

Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets. This is particularly true for Canada which relies on exports and particularly those to the U.S. for growth. It should be noted that this report focuses solely on goods trade - it leaves services trade for the quarterly national accounts and balance of payments reports.

Imports indicate demand for foreign goods while exports show the demand for Canadian goods in the U.S. and elsewhere. The Canadian dollar is particularly sensitive to changes in its trade balance with the U.S. For the most part, Canada's trade balance is in surplus thanks to its exports to the U.S. Both the nominal export and import values are split into volume (real) and price components. This permits trade data to be analyzed for both changes in trade patterns as well as changing prices. This has been particularly important of late given energy price volatility and the impact on Canada's merchandise shipments. A word of caution -- the data are subject to large monthly revisions. Therefore, it can be misleading to form opinions on the basis of one month's data.

The bond market is sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.