The Conference Board of Canada’s Senior Economist Doris Chu offers the following insights on the merchandise trade data for April:
Data released by Statistics Canada’s today unearthed an unsettling picture for Canada’s trade sector as both exports and imports registered steep double-digit declines in April—in which monthly declines of this magnitude have never been observed before. The collapse in trade was not surprising given that April was the first month that fully captured the destruction caused by the COVID-19 pandemic as public health containment measures to limit the spread of the virus were widely enforced across the globe. With the COVID-19 pandemic likely to have peaked in April, Canada’s trade activity dropped to levels close to what was seen during the 2008–09 recession as physical distancing measures put in place to slow the spread of the virus pushed the world economy into a deep recession, weighed on energy prices and severely fractured global supply chains. With many economies around the world having already started to gradually lift restrictions in May, the improvement in global conditions should lead to increased trade in the coming months. However, until the threat of the pandemic significantly dissipates, a full recovery for Canadian trade is still a long way off.
- The value of Canadian merchandise exports contracted by a deep 29.7 per cent in April, dropping to its lowest level in over 10 years. Records were set in April as motor vehicles and parts and energy products exports posted monthly declines that had never been observed before. Lower exports of motor vehicles and parts accounted for much of the monthly export decline as production shutdowns across all assembly plants in Canada saw exports of passenger cars and large trucks plunge by 84.8 per cent, while engines and parts exports were down 84 per cent. Meanwhile, lower global demand for energy products resulted in crude oil exports falling by 55.1 per cent. And exports of consumer products were also significantly down in April, as most retailers were closed throughout the month.
- A similar story unfolded on the import side as the value of merchandise imports dropped to a level last seen in February 2011, plunging by 25.1 per cent in April. Lower imports motor vehicle and parts imports accounted for the brunt of the monthly decline. Imports of passenger cars and light trucks were down 90 per cent, while engines and parts were declined by 68.3 per cent. Lower imports of energy products and consumers good also contributed to the monthly decline. Imports of crude oil contracted by 61.0 per cent, while consumer products imports were down 11.6 per cent (the largest decrease since 1988).
- With exports and imports posting record monthly declines, Canada’s merchandise trade deficit more than doubled from $1.5 billion in March to $3.3 billion in April.
- Lower shipments to and from the U.S. accounted for more than 90 per cent of the decline in trade activity in Canada in April. Pulled down by lower shipments of motor vehicles and crude oil, exports to the United States fell by 35.7 per cent in April, while imports were down by 35.3 per cent. As a result, Canada’s trade surplus with the United States narrowed from $3.5 billion in March to $2.2 billion in April.
- Exports to countries other than the United States declined by 11.1 per cent in April, while imports dropped by 6.3 per cent. Consequently, Canada’s trade deficit with the rest of the world from increased from $5.1 billion in March to $5.4 billion. The monthly decline in exports was largely owing to lower shipments to Germany, the United Kingdom and Mexico.
- Net trade contributed to real GDP growth in April as merchandise export volumes declined by 19.9 per cent, while imports contracted by a greater 24.8 per cent.
- Trade of services also got hammered in April as non-essential business services were put on hiatus and stringent travel restrictions were in place. Exports declined by 20.5 per cent in April, while imports plunged by a greater 30.7 per cent.
- Taken together, exports of goods and services fell by 28.0 per cent in April, while total imports fell by 26.2 per cent, bringing Canada’s trade deficit for goods and services to $2.9 billion for the month.
- With economies around the world starting to slowly ease restrictions and reopen their economies in May, this should support greater trade activity in the coming months as global demand starts to slowly pick up and production at plants and factories resume. However, until the threat of the COVID-19 pandemic significantly retreats, businesses will likely continue operating at reduced capacity for a period of time, thereby suggesting a full recovery for Canada’s trade will not be anytime soon.