Canada’s merchandise trade balance returned to deficit in March after two months of trade surpluses, with rising imports outpacing a slight increase in exports.
Imports jumped 5.5% in March from the previous month, reaching their highest level since May 2019, Statistics Canada reported on Tuesday. Exports increased by a modest 0.3 percent.
This pushed the merchandise trade balance to a deficit of $ 1.1 billion from a surplus of $ 1.4 billion in February, although this still leaves Canada with its first quarterly trade surplus in nearly five years.
“We expected a return to deficits, but it’s a little earlier than expected,” Royce Mendes, senior economist at CIBC Capital Markets, wrote in a note.
The increase in imports was widespread across all industries, with particular strength in imports of energy products, which rose 54.7% in the month. Statscan attributed the increase in part to Texas oil refineries returning to service after extreme winter conditions and power outages reduced production in February.
Exports of energy products, by contrast, fell 6.7% in March, as prices normalized after the February price shock.
“Natural gas exports more than doubled in February due to a sudden increase in prices caused by extreme weather conditions and power outages in the southern United States. The prices of natural gas exports in March were almost back to January levels, which explains the decline in the value of these exports, ”Statscan said.
Bilateral auto trade increased in March, boosting both imports and exports. Trade in vehicles fell sharply in February, as a shortage of semiconductor chips forced automakers to slow production on both sides of the border.
Statscan noted that the semiconductor shortage persisted in March but had a more moderate impact than in February. He added, however, that “the slowdowns are expected to intensify and could have a greater impact on exports in April.”
Excluding energy, exports rose 2% in March, supported by higher prices for metals and other raw materials. This was offset by a sharp drop in aircraft exports.
“Despite the deterioration in the trade balance, activity has been solid overall, with a few one-off factors hampering exports. Indeed, the strength of imports reinforces the fact that March was probably a very strong month for the domestic economy, ”wrote Benjamin Reitzes, Canadian rate director and macro-strategist at BMO Capital Markets, in a note.
“April will likely be quite volatile given the restrictions, but rising commodity prices should continue to support Canada’s trade balance,” he wrote.
Trade in services edged up during the month, with exports increasing 1.2 percent and imports 0.4 percent.
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