“Canada’s export numbers rose in February, but much of this was the return to normal after some temporary decreases in January. Exports have grown in the past 12 months, but not fast enough to contribute to overall economic growth. With softer consumer and investment spending expected this year, hopes for the trade sector to make a larger contribution to economic growth are looking less likely. That is particularly frustrating given the booming economy in our largest trading partner, the United States, and the relative weakness of the Canadian dollar. Hopefully an imminent agreement in principle on NAFTA will alleviate some of the risks facing Canada’s export sector.”
Merchandise exports rose by 0.4 per cent in February after declining in January. Some of this was a return to normal production following temporary plant closures in the motor vehicles industry. Output in other industries that declined in January contributed to growth in February, including aircraft and other transportation equipment. On the other hand, exports of agriculture and mining were down considerably. Exports are up 1.5 per cent from this time last year.
In real terms, exports were up by 0.6 per cent, while the economy as a whole grew by 2.7 per cent in the year to January. That means export growth is a drag on overall economic growth.
We like to look at non-energy exports for a sense of how competitive Canada is in the global market. Non-energy exports were up by 0.7 per cent in February but are unchanged from a year ago. That means that export-driven growth will remain elusive, particularly given that firms are showing a reticence to invest in Canada.
Despite rising exports, Canada’s merchandise trade deficit grew from $1.9 billion to $2.7 billion in February, as imports grew even faster than exports.
The largest contributors to the import growth were energy products and motor vehicles and parts. Imports of motor vehicles and parts increased for the same reason as exports did. In January there were temporary plant shutdowns, so the February numbers represented a return to normal.
After declining for two months, exports to the United States increased by 1.9 per cent in February. But imports from the U.S. increased even more, shrinking Canada’s merchandise trade surplus to $2.6 billion. Exports to the rest of the world saw a large 4.2 per cent decline. Despite uncertainty over future U.S. trade policy under the Trump administration, the share of Canada’s exports going to the United States has remained relatively stable over the past three years.
Some media reports suggest that Canada, the United States, and Mexico are very close to an agreement in principle on changes to the North American Free Trade Agreement. If true, that means a new agreement could possibly be ratified by the end of 2018, alleviating a major source of uncertainty for Canadian exporters.