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Marc-Antoine Dumont
Senior Economist
Economic News
Canada: Trade Balance Was Back in the Black to Start 2024
March 7, 2024
Highlights
- Canada’s international merchandise trade balance climbed back into positive territory in January, with a surplus of $0.3 billion after posting a deficit of $0.9 billion in December.
- Exports fell for a third consecutive month in January, with a 1.7% m/m decline. Imports were also down 3.8% and are at their lowest level since February 2022. In real terms, both exports and imports contracted in January, with a -2.2% and -3.8% m/m decline, respectively.
- Canada’s trade deficit with other countries than the United States narrowed from $9.4B to $8.3B. Meanwhile, the trade surplus with the US edged up to $8.8B.
Comments
The swing in the trade balance from deficit to surplus in January is mostly the result of lower imports, as 7 out of the 11 product categories experienced declines. Imports of consumer goods erased most of their December gains, decreasing 7.1% in the first month of the year. This category alone explained 40% for the import decline in the month. This sharp decline in consumer imports illustrates the challenges faced by consumers in the current high interest rate environment.
The rest of the weakness in imports came from motor vehicles and parts (-5.2%), metal and non-metallic mineral products (-9.2%), and basic and industrial chemical, plastic and rubber products (-3.5%). The January release is a reminder that global industrial production is slowing, most notably in the automobile industry, and weighing on imports.
The majority of the export product categories also experienced declines in January. However, most of the decline occurred in energy products (-1.3%), metal and non-metallic mineral products (-6.2%) and aircraft and other transportation equipment and parts (-13.9%). The latter not being too surprising as this product category has a history of ups and downs that depend on the delivery schedule of new planes and parts. That said, the Trans Mountain oil pipeline is expected to come online in early spring this year and producers are already salivating over this new export capacity. The outlook should also start getting better for the auto industry in the coming quarters. Therefore, exports will likely benefit from a stronger industrial activity and higher volumes of oil exports.
Implications
Today’s trade data didn’t nudge our growth tracking much. We still expect a real GDP growth (annualized) of around 1.0% to 1.5% in Q1 2024. But it speaks more crucially to the coming rate decisions by the Bank of Canada. Yesterday, the Bank highlighted External link. that the Canadian economy is exhibiting excess slack. The January trade data speak to this, particularly regarding household consumption, which was broadly flat in the latter half of 2023. A slowing of the Canadian economy is exactly what the Bank of Canada is hoping for, in order to further reduce still-persistently high underlying inflation. As such, supported by economic indicators like the January 2024 trade data, we continue to expect rate cuts to begin in June.
