Goods balance improves, but trade remains vulnerable to global supply chain disturbances

Canadian Economics

By: Doris Chu

  • With exports rising more than imports, Canada’s merchandise trade surplus widened from $736 million in July to $1.9 billion in August.
  • Canada’s merchandise exports rose by 0.8 per cent in August. The gain was largely owing to higher energy products (+5.1 per cent), which reached its highest level since March 2014. Excluding energy, non-energy exports were down 0.4 per cent. Metal and non-metallic minerals (+4.0 per cent) also contributed to the monthly gain, while lower exports of motor vehicle and parts (-7.3 per cent) and forestry products and building and packaging materials (-7.9 per cent) provided some offset.
  • After increasing by 4.3 per cent in July to reach a record high, merchandise imports retreated in August, contracting by 1.4 per cent. Lower imports of motor vehicles and parts (-11.1 per cent) and aircraft and other transportation equipment and parts (-28.8 per cent) more than offset widespread gains in other products.
  • Eliminating the price effects, real merchandise exports increased by 2.3 per cent for the month, while import volumes were down 3.2 per cent. With exports outpacing imports, net exports were a positive contributor to real GDP growth in August.
  • Exports to the United States decreased by 0.7 per cent in August, while imports declined by a much greater 6.2 per cent. As a result, Canada’s trade surplus with the United States increased to $8.6 billion for the month, up from $6.8 billion in July. This was the largest monthly trade surplus recorded with the United States in 13 years.
  • Trade of services showed further improvement in August, with exports registering a 1.3 per cent gain, while imports advanced by 3.7 per cent.

Key insights:

  • August’s merchandise trade numbers were encouraging, but much of this was due to higher energy exports. The monthly numbers highlighted the ongoing pandemic-induced challenges that many non-energy sectors have been enduring, with the most prevalent being fractured production processes owing to supply chain disruptions. With the pandemic far from over, the outlook for Canada’s merchandise exports remains on shaky ground. Global supply chain disruptions and other hurdles erected by the pandemic will continue to weigh on merchandise exporters over the next few months. On the other hand, Canada’s land border’s reopening to fully vaccinated Americans is expected to support non-merchandise exports.
  • Despite facing similar challenges as Canada’s exporters, merchandise imports will outperform exports by a wide margin for the year. At the same time, the recovery for non-merchandise imports will lag exports. Nevertheless, non-merchandise imports are likely to increase in the months ahead, underpinned by a shift in consumer spending patterns from goods to services that were frequently put on hold throughout the pandemic.
  • Improving global and domestic demand conditions will not be enough to prevent Canada’s trade sector from hitting some speed bumps in its recovery. Increased outbreaks of the Delta variant worldwide will continue to unsettle international trade flows in the coming months. Consequently, trade’s contribution to overall economic growth will be limited over the short-term.