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Economic News

Canada: The Trade Balance Slid Further into Deficit in May

July 3, 2024
Marc-Antoine Dumont
Senior Economist

Highlights

  • Canada’s international merchandise trade deficit widened from $1.3B in April to $1.9B in May.
  • Exports declined by 2.6% m/m while imports fell by 1.6% in May. In real terms, both exports and imports decreased, with declines of 1.7% and 1.3%, respectively.
  • Canada’s trade deficit with countries other than the United States widened from $8.4B to $10.1B. Meanwhile, the trade surplus with the US edged up to $7.1B from $8.2B.

Comments

Exports of unwrought gold, silver and platinum group metals and their alloys decreased by -17.1%, the largest decline on the export side. It also more than offset the 15.7% advance in April. This again highlights the volatility observed in gold exports over the past few months as the current geopolitical landscape and the recent surge in prices lead to idiosyncratic movements on the market. Exports of motor vehicles were, however, up 3.6% due to higher exports of light trucks. Although total exports lost some ground last month, it mostly reflects the outsized swings experienced in some categories, like in gold and aircraft exports, and doesn’t point to generalized weakness in exports. Indeed, these two categories alone accounted for roughly half of the decline in exports in May.  

On the import side, it was more of a mixed bag. While imports of motor vehicles (-4.4%) and energy products (-11.6%) fell, finished and intermediate goods (1.4%) and metal ores and non-metallic minerals (27.3%) were up. Again, the recent volatility in gold prices as caused strong monthly variations in the latter category.

Implications

While today’s trade data undershot expectations, the weakness is mostly concentrated in metal exports during a period of high volatility. Nonetheless, May’s print points to downside risk to the Bank’s Q2 real GDP tracking of 1.5% (annualized). Looking ahead, the Bank of Canada will be focused on the June labour market report this Friday and inflation data in mid-July in determining whether the next rate cut occurs later this month or gets pushed out to September.

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