Canada’s Trade Deficit Widens, as Exports Fall for a Second Consecutive Month

Canadian Economics

  • Canada’s merchandise imports decreased by 0.5 per cent (month-on-month) in June. Meanwhile, exports fell by 2.2 per cent. Canada’s merchandise trade deficit widened from $2.7 billion in May to $3.7 billion in June.
  • Total exports declined by 2.2 per cent in June, falling to $60.7 billion. Exports of metal and non-metallic mineral products decreased by 8.0 per cent, mainly due to a drop in exports of unwrought gold, silver, and platinum metals. Meanwhile, exports of farm, fishing, and intermediate food products were down 4.4 per cent due to a decline in exports of canola (–42.4 per cent) and intermediate food products (–15.0 per cent). Ultimately, nine of the eleven product sections posted declines in June.
  • Total imports fell by 0.5 per cent to $64.4 billion. Imports of energy products were down 13.0 per cent, mainly driven by a decline in imports of refined petroleum energy products. In June, lower imports of pharmaceutical products contributed most to the decline in imports of consumer goods (–1.9 per cent). However, imports of metal and non-metallic mineral products increased by 12.9 per cent, partially offsetting the declines in imports of energy products and consumer goods.
  • Imports from the United States decreased by 0.7 per cent, while exports fell by 1.2 per cent. As a result, the merchandise trade surplus with the United States narrowed from $7.7 billion in May to $7.4 billion in June.

Key Insights

The worst wildfire season on record could stunt net export growth in the short run. Wildfires occur each year, but the scale and intensity of the wildfires this year resulted in the worst-ever wildfire season. In reaction to the spreading wildfires, several Canadian oil and gas producers suspended operations, causing a significant decrease in oil production—amounting to 120,000 barrels per day. At the same time, the forestry sector shut down sawmills, resulting in delays in producing forest products. Considering that Canada is a significant exporter of mineral fuels and forestry products, the wildfires have the potential to impede export growth in the months to come.

The global economy is losing its momentum. Major central banks around the world have implemented forms of tightening monetary policies aimed at controlling inflation. Higher borrowing costs have slowly worked their way throughout the global economy, which has softened global demand. The Drewry composite world container index showed that the average port-to-port rate for a 40-foot container was $1,576 USD during the week of July 27—a 76.7 per cent decline from a year ago. Improved supply chain pressures and weaker global demand have contributed to the decrease in freight rates over the last year.

Geopolitical tensions will continue to shape the global economic landscape. The global economy, particularly global trade, faces additional uncertainty due to rising tensions between the U.S. and China, coupled with Russia’s ongoing invasion of Ukraine. Moreover, the BRICS nations are actively seeking to reduce reliance on the U.S. dollar and promote their economic interests by proposing the creation of a new gold-backed currency. Such a move could exacerbate geopolitical divisions. Additionally, if there is a shift away from the U.S. dollar as the world’s reserve currency, it could lead to the devaluation of the Loonie and disrupt the landscape of international trade.

For an overview of our three-year international trade outlook for Canada, click here.