Canada’s trade deficit remains fairly stable in May; exports expected to rebound in H2

Canada’s trade deficit remained quite stable in May at CAD 3.3 billion. The nation recorded a decline in exports of 0.7 percent, whereas imports dropped 0.8 percent. Real exports and imports dropped 2.3 percent and 0.9 percent respectively in May. Given that the Alberta wildfires have taken a considerable amount of capacity offline in May, crude exports were relatively well. But the outages extended in June and are expected to be a drag on exports in that month, noted TD Economics in a research report.

Exports, for the second quarter as a whole, are expected to be quite weaker than the first quarter’s. Net trade will likely be a drag on the overall growth in second quarter after contributing positively for almost three quarters, according to TD Economics. However, the outlook appears to be brighter in the future.

Exports are likely to rebound in the second half of 2016, as disturbances from the wildfires wand and underlying fundamentals, which is strong US demand and a Canadian dollar hovering around the mid-to-high 70 US cent range, continue to be supportive. Exports are likely to become a main source of strength in the Canadian economy again.

The decline in May’s exports was widespread. The drop was led by exports of metal and non-metallic mineral products, which fell 5.4 percent. Declines were also registered in industrial machinery, equipment and parts, fishing, farm and intermediate food products.

However, the declines here were countered by a rise in energy products that grew 7.1 percent. The increase in the exports of energy products was mainly due to increased prices, as volumes of energy exports were down 2.3 percent.

Export volumes of crude oil and bitumen grew 0.6 percent in spite of the wildfires in Alberta, as inventories in the province were drawn down and refinery activity dropped, making more crude available for export.

Drop in imports of aircraft and other transportation equipment and parts declined 23.5 percent, driving the decline in overall imports in May. Metal ores and non-metallic minerals imports dropped 24.2 percent. Meanwhile, imports of energy products rose 18.2 percent, countering some of the declines.  Refined energy products’ imports rose 63.8 percent in May.

Canada’s trade surplus with the US increased to CAD 2.8 billion, as exports grew 3.6 percent and imports fell 1.1 percent. Canada’s trade deficit with the rest of the world broadened to CAD 6 billion in the month.