The Conference Board of Canada’s Senior Economist Doris Chu offers the following insights on the merchandise trade data for March:
March was the first month that provided a snapshot of the devasting impact of COVID-19 on Canada’s trade flows and the picture was not pretty. Although international borders remained open for the transfer of goods between countries, both Canadian merchandise exports and imports declined sharply as factory shutdowns and weaker global demand upended global supply chains. The outlook for Canada’s trade sector in the coming months remains very grim with both exports and imports headed towards double-digit declines in the second quarter.
- The value of Canadian merchandise exports plunged by 4.7 per cent in March, dropping to the lowest level since January 2018. Except for an increase in agriculture products exports, the monthly decrease was widespread with notable declines in motor vehicles and parts, aircraft and energy exports. The month saw numerous North American automotive manufacturers halt production (which continues through to May), while work stoppages shuttered industries that produce aircraft and other transportation equipment. At the same time, low prices and weak global demand weighed heavily on energy exports.
- The Canadian dollar fell 3.6 US cents in March, representing the largest monthly decline in the value of the Canadian dollar since January 2015. It is worth noting the monthly decline in exports would have likely been much deeper had it not been for the sharp depreciation of the Canadian dollar.
- Merchandise imports declined by 3.5 per cent in March, sliding to a level last seen in October 2017. Similar to exports, lower imports of motor vehicles, aircraft and energy products accounted for much of the monthly decline.
- With both exports and imports down by nearly 10.0 per cent on a year-over-year basis, Canada’s merchandise trade deficit widened from $894 million in February to $1.4 billion in March.
- Weighed down in large part by lower shipments of motor vehicles and crude oil, exports to the United States plunged 4.9 per cent in March, while imports contracted by 5.1 per cent. As a result, Canada’s trade surplus with the United States inched down from $4.0 billion in February to $3.9 billion in March.
- A 4.1 per cent decline in exports to countries other than the United States, coupled with a 0.5 per cent decline in imports, had a major hand in widening Canada’s trade deficit with the rest of the world from $4.9 billion in February to $5.3 billion in March. The monthly decline in exports was largely owing to lower shipments of gold to the United Kingdom and other transportation equipment to Saudi Arabia.
- Trade of services was also hit hard. With non-essential business services shuttered and strict travel restrictions in place, exports declined by 7.2 per cent in March, while imports plunged by 11.5 per cent.
- Taken together, exports of goods and services fell by 5.1 per cent in March, while total imports fell by a near-equivalent 5.2 per cent, bringing Canada’s trade deficit for goods and services to $2.4 billion for the month.
- Despite all the turmoil, net trade contributed to real GDP growth in March as merchandise export volumes declined by 4.8 per cent, while imports contracted by a greater 5.8 per cent.
- On a quarterly basis, real merchandise exports contracted by 1.7 per cent in the first quarter, with lower exports of motor vehicles and parts and energy products accounting for much for much of the decline. This will mark the third consecutive quarter that export volumes have fallen. At the same time, imports contracted by 2.5 per cent, pulled down by lower imports of electronics and electrical parts and motor vehicles and parts.
- Canada’s trade sector will have to brace for rough ride in the coming months as the pandemic’s effect on the economy had yet to reach a peak in March. With physical distancing measures in place, factories shuttered, business investment muted and global demand dropping off, international trade flows will be severely disrupted in April and a recovery will take time.