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Free AccessMNI DATA ANALYSIS: Behind Cdn Record Trade Gap, Some Positives
By Yali N'Diaye
OTTAWA (MNI) - Canada goods trade deficit reached a record high C$4.1
billion in March, widening from C$2.9 billion in February, which was slightly
revised from C$2.7 billion, leading to a deterioration of the balance in the
first quarter that does not bode well for net export contribution to GDP growth,
according to data from Statistics Canada.
Overall the trade deficit widened to C$9.1 billion in the first quarter
from C$7.4 billion in the fourth quarter. In real terms, the deficit widened to
C$5.4 billion from C$4.0 billion.
While the headline figure would appear to challenge the Bank of Canada's
sticking view that growth composition will shift towards greater reliance on
exports and business investment and less on consumer spending, details Thursday
had some positives to offer.
--EXPORTS STILL GREW
The C$4.1 billion deficit was much larger than the C$2.3 billion that
analysts in an MNI survey had anticipated, but resulted from import strength
rather than export weakness.
Exports indeed grew 3.7% on the month to C$47.6 billion, mainly as a result
of higher volumes (+3.0%).
Gains were widespread across categories. Regionally, exports to the U.S.,
on which the Bank of Canada's scenario hinges, rose 1.2% in March after a 1.5%
gain in February, although strong imports resulted in a trade surplus with the
U.S. narrowing to C$1.7 billion, the smallest since June 2016.
Aircraft and other transportation equipment (+24.3%), farm, fishing and
intermediate food products (+14.7%), and energy (+4.2%) contributed the most.
That being said, exports did slow over the quarter, when they rose 1.0%
after a 4.9% gain in the fourth quarter of 2017. In real terms, the picture was
also less supportive, with exports up just 0.3% after another modest 0.6%
increase the previous quarter.
Exports of goods and services rose 0.7% in the fourth quarter, with a 0.9
point contribution to the 1.7% annualized real GDP growth. But imports rose
twice as fast (+1.5%), leading to a negative contribution of net trade.
--STRONG DOMESTIC DEMAND
Imports soared 6.0% in March to a record C$51.7 billion, owing to strong
volumes (+5.3%) and widespread strength.
For the quarter as a whole, imports rose 2.1% after +3.7% the previous
quarter, with a real gain of 1.5% after +1.6%.
Growing imports suggested domestic demand was solid in the first quarter,
with motor vehicles and parts (+8.3%) and consumer goods (+7.7%) leading the
gains.
But particularly encouraging was the further increase in industrial
machinery, equipment and parts (+3.2% after +2.1% in February), a positive sign
for investment activity in Canada.
However, the latter category was still down 2.8% in the first quarter after
a 5.5% quarterly gain in February.
--WAYS TO GO
Overall the data actually supports the Bank of Canada's scenario of
stronger exports and business investment as growth composition shifts away from
consumer spending. That being said, the latter remains a significant support of
growth, which is likely to be verified again in the first quarter.
Nonetheless, Thursday's data did not bode well for the net export
contribution to GDP growth, the weakening of which has already been factored in
by the central bank, which revised its annualized real GDP growth estimate to
1.3% for the first quarter, before rebounding 2.5% in the second quarter.
"The positive trend in investment spending is expected to reassert itself
in the second quarter of 2018," the BOC said in its April Monetary Policy
Report. "Recent import data continue to signal robust growth of investment in
machinery and equipment," it added.
Transportation disruptions in the first quarter should dissipate, allowing
for an export rebound in the second quarter, led by crude oil, the BOC said.
In March, crude oil led the 1.2% increase in exports to the U.S., where
solid growth is anticipated to support Canadian sales.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: M$C$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.