Decline in Imports Pushes Trade Balance Upward

  • Canada’s merchandise imports declined by 2.9 per cent (month-on-month) in March. Exports faced a similar fate, falling 0.7 per cent. Canada’s merchandise trade balance with the world rose from a revised $487 million deficit in February to a $972 million surplus in March.
  • Total exports fell by 0.7 per cent to $63.6 billion. Exports of farm, fishing and intermediate food products declined by 5.3 per cent, while exports of aircraft and other transportation equipment and parts rose 30.8 per cent in March. Further, exports of energy products declined for a ninth consecutive month—falling by 5.9 per cent in March.
  • Total imports decreased by 2.9 per cent to $62.6 billion. Imports in all product sections declined except for metal and non-metallic mineral products, as well as industrial machinery, equipment and parts. For example, after increasing in February, imports of pharmaceutical products fell 31.8 per cent in March. Meanwhile, imports of consumer goods declined by 11.0 per cent.
  • Imports to the United States decreased by 0.09 per cent, while exports fell by 1.5 per cent. As a result, the merchandise trade surplus with the United States narrowed, moving from $8.3 billion in February to $7.6 billion in March.

Key Insights

Global uncertainty and geopolitical pressures will shape the world economy’s outlook and the future of international trade. The near-term future of oil prices remains uncertain. Investors are concerned that oil demand will cool due to a looming worldwide economic slowdown. This decline in investor sentiment has caused oil prices to trend downwards—despite the slash in oil production by OPEC+ nations—which will hurt Canadian exports. What’s more, there are countries that seek alternatives to U.S. dollars for trade amidst geopolitical tensions. De-dollarization will not bring on the end of the U.S. dollar but may change the future of international trade. There are also recessionary fears closer to home; yet another U.S. bank failed, making it three bank failures over the span of two months. The Fed’s most recent rate hike has widened the interest rate differential and intensified the risk of a U.S. recession. If a recession occurs in the U.S., it will likely spill over into Canada.

It is not all doom and gloom. Canada’s labour market performed well in Q1 of 2023, and consumers have been resilient. Inflationary pressures have eased slightly, and the national inflation rate has decelerated faster than expected. Further, supply chain pressures have fallen drastically since the turn of the year—the Global Supply Chain Pressure Index (GSCPI) is the lowest it’s been since May of 2019, meaning that supply chain bottlenecks have improved and are not as big of an issue as they were in the last few years. In addition, Canadian oil producers aren’t necessarily feeling the impact of lower oil prices because the gap between the prices of Western Canadian Select and Western Texas Intermediate is shrinking.