Canada Trade Disappoints With April Deficit, March Markdown (1)

(Bloomberg) — Canada’s trade deficit was wider than forecast in April, and there was further disappointment in revised figures showing larger gaps in the prior two months.

Imports exceeded exports by C$370 million ($274 million) in April, Statistics Canada said Friday in Ottawa. The median forecast in a Bloomberg survey of economists was for a shortfall of C$20 million.

Key Points

  • In addition to the April setback, the agency boosted the March deficit to C$936 million from an initial reading of C$135 million. It also increased February’s shortfall to C$1.41 billion from C$1.08 billion.
  • Exports grew 1.8 percent in April to C$47.7 billion, faster than the 0.6 percent rise in imports to C$48.1 billion; both figures were record highs. Export gains were led by a 4.4 percent rise in automobiles and parts, and a 4.7 percent rise in forestry before U.S. duties on softwood lumber took effect at the end of the month.
  • The report showed some building momentum in trade, with exports rising 14.7 percent in April from a year earlier, almost double the 7.4 percent gain in imports.

Big Picture

The latest trade figures are another signal of Canada’s complicated transition after an oil shock, where exports and business investment have been weak spots while consumers keep borrowing and spending. Policy makers have said a long period of above-average production is needed to restore the economy to full health. Questions around further delays in the recovery may discourage the Bank of Canada from raising its key lending rate above 0.5 percent, where it’s been since July 2015.

Economist Reaction

Economists weighed the weaker headline trade balance against the second month of growth in exports, after some weakness in the first quarter. “Trade appears to be beginning to get traction,” according to Benjamin Reitzes, a Canadian rates and macro strategist at BMO Capital Markets in Toronto. “The second quarter is going to look a lot better” than the first one, he said by phone.

Other Details

  • The surplus with the U.S. widened to C$5 billion in April from C$3.4 billion a month earlier, the largest since May 2014. The deficit with countries other than the U.S. widened to C$5.3 billion from C$4.4 billion.
  • The volume of exports advanced 1.1 percent and import volumes fell 0.3 percent, Statistics Canada said. Volume figures adjust for price changes and can be a better indicator of how trade contributes to economic growth, and in volume terms there was a trade surplus that widened to C$843 million from C$239 million.
  • There were mixed signs on whether companies are importing more gear to boost their production capacity. Inbound shipments of industrial machinery, equipment and parts were unchanged, while electronics imports gained 4.6 percent.
  • Most of the boost to the March deficit was linked to imports, part of which came from crude oil and bitumen.

(Updates with quote in economist reaction section.)

–With assistance from Erik Hertzberg

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