A freighter sits at anchor on the harbour as cargo containers are seen stacked at port during a strike by International Longshore and Warehouse Union Canada workers, in Vancouver, B.C., on July 4.DARRYL DYCK/The Canadian Press
Canada’s trade balance for goods swung unexpectedly into negative territory in May, producing the largest trade deficit since October, 2020, and acting as an anchor on economic growth in the second quarter.
Led by a decline in energy and agriculture exports, Canada posted a $3.4-billion merchandise trade deficit in May, down from a revised $894-million surplus in April, Statistics Canada reported Thursday. Bay Street forecasters had expected a $1.15-billion surplus that month.
Goods exports declined 3.8 per cent due to both falling prices and lower shipments. In volume terms, exports decreased 2.5 per cent. Meanwhile, imports were up 3 per cent overall and 3.5 per cent in volume terms. (A trade deficit occurs when imports exceed exports).
Trade has been a meaningful contributor to GDP growth so far this year, and a decline in exports could weigh on economic momentum in the second quarter, Stephen Brown, deputy chief North America economist at Capital Economics, wrote in a note to clients.
“The slump in export volumes presents downside risks to the preliminary estimate that GDP rose strongly in May, and suggests that the earlier boost from easing supply shortages is now largely behind us,” Mr. Brown wrote. “With the survey-based orders evidence still weak, exports seem likely to fall further in the coming quarters.”
The drop in exports was led by oil and food. Crude oil exports fell 8.3 per cent – largely on lower prices – while exports of farm, fishing and intermediate food products decreased 13.4 per cent. Worldwide demand for Canadian wheat and canola has slumped in recent months, Statscan noted, yielding lower prices and incentivizing farmers to store their harvests and wait for market conditions to improve.
Meanwhile, imports remained robust, highlighting the continuing strength of Canadian consumers. Vehicle and car part imports rose 4.5 per cent in May, reflecting improving auto-manufacturing supply chains and sustained demand for new vehicles.
Metal imports also jumped thanks to unusually large shipments of silver from Britain to Canada. “Like gold, demand for silver tends to increase in times of economic uncertainty,” Statscan said.
Canadian trade faces headwinds over the summer and into the fall. While the country’s major trading partners have so far avoided a recession, central banks around the world continue to raise interest rates to slow economic growth and curb inflation. Most forecasters expect the U.S. economy – the destination for most Canadian exports – to slow in the second half of the year.
The continuing strikes at ports in British Columbia could also weigh on trade, Bank of Montreal senior economist Robert Kavcic said in a note to clients.
“Roughly 20 per cent of total Canadian goods trade runs through those ports, which presents the possibility of [a] short-term growth hiccup, as well as another (hopefully very temporary) supply-chain disruption. Major outbound shipments include grain, forest products and potash; large inbound volumes include consumer goods and autos,” Mr. Kavcic wrote.