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The Quick Take: July 6, 2018

Exports Stall, Imports Rise in May

Doris Chu
Senior Economist
National Forecast

“May’s merchandise trade numbers highlight the ongoing struggles in the trade sector. Although supported by stronger U.S. economic demand and a competitive Canadian dollar, Canada’s trade sector is besieged by the concern that further protectionist measures will weigh heavily on trade’s growth prospects over the near term.”

Following a string of increases over the past several months, Canadian merchandise exports took a pause in May, declining by 0.1 per cent. Lower exports of motor vehicles and parts, as well as metal ores and non-metallic minerals, offset increases in aircraft and other transportation equipment to leave export levels unchanged from one year ago.

On the other hand, imports increased by 1.7 per cent in May. Import gains were widespread with the aircraft and refined petroleum energy products being the largest contributors to growth.

With imports jumping ahead of exports by a wide margin, Canada's merchandise trade deficit deteriorated, climbing from $1.9 billion in April to $2.8 billion in May.

Canada’s trade surplus with the U.S. shrank from $3.7 billion in April to $3.3 billion in May. The narrowing of the gap came despite a 0.8-cent depreciation of the Canadian dollar relative to the U.S. greenback between April and May.

Canada’s trade performance was little better with the rest of the world. Canada’s trade deficit with the rest of the world widened from $5.6 billion in April to $6.1 billion in May as exports increased by a mere 0.2 per cent while imports increased by a greater 2.9 per cent.

In real terms, lower exports of metal ores and non-metallic minerals underpinned much of the 1.0 per cent decline in exports, while higher imports of aircraft contributed largely to the 1.2 per cent increase in imports.

Looking ahead, solid U.S. economic demand and a competitive Canadian dollar will be beneficial to the trade sector, however, growth prospects will be largely muted by uncertainties over the North American Free Trade Agreement (NAFTA) and further protectionist actions by the U.S.

Tensions between Canada and the U.S. continue to escalate. With NAFTA talks stalling at the end of May, the U.S. imposed a 25 per cent tariff on imported steel and 10 per cent on imported aluminum from Canada, effective June 1st. Canada retaliated by levying countermeasure tariffs on numerous imports from the U.S. at the start of July. Clearly this will have a substantial impact in the year ahead.

Given the ongoing concerns on the trade front, the Bank of Canada will likely remain vigilant on the timing of its next rate increase. However, with the economy operating close to capacity, we still expect one more rate increase this year.

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