CA: Merchandise Trade

Thu May 03 07:30:00 CDT 2018

Consensus Actual Previous
Level C$-2.3B C$-4.1B C$-2.7B
Imports-M/M 6.0% 1.9%
Exports-M/M 3.7% 0.4%
Imports-Y/Y 9.2% 3.5%
Exports-Y/Y 1.9% 1.5%

March merchandise deficit swelled to a record C$4.1 billion from C$2.9 billion in February. Imports were up a monthly 6.0 percent while exports increased 3.7 percent. In real (or in volume) terms, imports rose 5.3 percent and exports were up 3.0 percent. Nine of 11 sections increase in imports with motor vehicles and parts and along with consumer goods largely responsible for the increase. On the year, imports were up 9.2 percent.

Imports of motor vehicles and parts recorded the strongest increase since 2011. Imports of consumer goods also contributed to the overall increase as did clothing, footwear and accessories. Pharmaceutical and medicinal products also contributed to the increase, mainly on higher imports from the United States and Belgium.

Exports of aircraft and other transportation equipment and parts; farm, fishing and intermediate food products; and energy products contributed the most to the widespread increase. Exports excluding energy products rose 3.6 percent. On the year, total exports were up 1.9 percent. For a second consecutive month, exports of aircraft and other transportation equipment and parts rose sharply, up 24.3 percent. Exports of boats and other personal transportation equipment almost tripled, mainly due to higher exports of other transportation equipment to Saudi Arabia. Aircraft engines and aircraft parts also contributed to the increase in March, primarily on higher shipments to the United States.

In March, Canada's total trade with countries other than the United States reached a record C$31.2 billion, with imports increasing 11.5 percent and exports up 11.4 percent. Imports from China (26.6 percent) led the increase, mainly on higher imports of computers and computer peripheral equipment and of communications and audio and video equipment. Other notable increases were in imports from the Netherlands (motor gasoline) and Germany (passenger cars and light trucks). Higher exports to countries other than the United States were mostly attributable to the United Kingdom (unwrought gold), Saudi Arabia (other transportation equipment), South Korea (aircraft) and Japan (copper and coal). Consequently, Canada's trade deficit with countries other than the United States widened from C$5.2 billion in February to C$5.8 billion in March.

After rising 3.8 percent in February, imports from the United States increased 3.1 percent in March mainly due to higher imports of passenger cars and light trucks. Exports to the United States rose 1.2 percent, led primarily by higher exports of crude oil. Comparing the average exchange rates of March and February, the Canadian dollar lost 2.1 US cents relative to the American dollar. As a result, Canada's trade surplus with the United States narrowed for the fifth consecutive month, moving from $2.3 billion in February to $1.7 billion in March.

The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness. Nominal data are supplied with regards to principal trading partners and product classification.

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.