Canadian trade is likely to make a positive contribution to growth in Q2

The Canadian merchandise trade deficit narrowed in April, to $3.0 billion, up from a downwardly revised $3.9 billion in March. A 2.5% decline in nominal imports was largely responsible for the narrowing, as exports fell a further 0.7%.

The split between prices (incomes) and volumes (real GDP) appears likely to continue into the quarter. In volume terms, the overall export performance was perhaps slightly better than expected, although the product mix was somewhat disappointing. Despite the stage being set for a recovery in manufactured goods exports, meaningful growth in this sector has not yet materialized. Looking at imports, weak income growth likely played a role in the decline.

According to TD Economics, today's release suggests that while trade is likely to make a positive contribution to growth in the second quarter, it is unlikely that we will see a return to strong growth. Real GDP is currently tracking in the 0.5% to 1.0% range, well below the 1.8% growth assumed by the Bank of Canada in the April Monetary Policy Report.

On the monetary policy front, today's report is unlikely to meaningfully move the needle for the Bank of Canada. That said, the disappointing first quarter growth number, underperformance of manufactured goods exports, and a continued reliance on foreign growth in the outlook all pose downside risk for the Bank of Canada's outlook.