| Consensus | Consensus Range | Actual | Previous | Revised | |
| Balance | C$2.5B | C$2.5B to C$3.7B | C$4.243B | C$2.721B | C$3.405B |
| Imports - M/M | -0.2% | 0.3% | 0.5% | ||
| Imports - Y/Y | 8.8% | 7.4% | 8.2% | ||
| Exports - M/M | 0.9% | 1.6% | 2.6% | ||
| Exports - Y/Y | 26.0% | 24.7% | 26.7% |
Highlights
Canada’s merchandise trade surplus widened more than expected in May, reaching C$4.243 billion, up from C$3.405 billion in April, which was revised up from C$2.721 billion. Forecasters in an Econoday survey had expected a surplus of C$3.7 billion at most.
The larger-than-expected and third consecutive surplus resulted from a combination of higher exports and lower imports.
Exports rose 0.9 percent to a record C$77.1 billion, benefitting from a price effect as volumes were virtually unchanged. Exports increased despite a 2.0 percent decline in energy, without which sales abroad would have been up 2.0 percent. Overall, 7 of 11 categories posted gains on the month, led by metal ores and non-metallic minerals (up 16.1 percent) amid ongoing supply chain disruptions related to the closure of the Strait of Hormuz that slowed shipment traffic.
Exports of metal and non-metallic mineral products were up 1.5 percent. Elsewhere, consumer goods, basic and industrial chemical, plastic and rubber products, and farm, fishing and intermediate food products all recorded increases.
Looking ahead, the second quarter bank of Canada Business Outlook Survey found that the export outlook improved, with fewer firms reporting trade tensions as a drag."In particular, fewer said US customers are holding back." The report also said that demand for goods and services tied to the construction of AI data centres in the United States are supporting export outlooks.
By contrast, imports contracted 0.2 percent in May, as an 18.2 percent plunge in metal and non-metallic mineral products more than offset otherwise widespread gains across 9 of 11 categories. Excluding this section, imports actually rose 1.9 percent on the month. The decline in metal and non-metallic mineral products was led by gold. Basic and semi-finished iron or steel products, down 22.7 percent their lowest level since December 2020, also contributed to the decrease.
Most major import categories increased in May, including motor vehicles and parts, up 1.2 percent. More than 2,900 Chinese-made electric vehicles arrived in Canada in May as part of an agreement between the two countries.
The overall import decrease in May was price related, as volumes were up 0.4 percent.
Regionally, imports from the U.S were down 1.4 percent, while exports increased 1.5 percent, leading to a surplus of C$11.6 billion in May, up from C$10.3 billion in April.
By contrast, Canada's trade deficit with countries other than the United States widened to C$67.4 billion in May from C$6.9 billion in April.
When also including services, the international trade surplus with the world widened to C$238 billion from C$3.2 billion.
Market Consensus Before Announcement
Exports lifted by rising energy prices. On the import side, the arrival of Chinese EVs expected to boost imports. Leaves the surplus at C$2.5 billion in May versus C$2.7 billion in April.
Definition
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.
Description
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.