Canada's Trade Balance Falls Back into Negative Territory

Canada's trade balance fell to -C$0.2 billion in April after a C$1 billion reading (revised from C$ 1.1 billion) in March. Expectations were for a C$1 billion reading.

Exports fell 5.1% after a 2% drop in March. The decline was broad based with all major sub components declining except automobile exports (up 2.7%). Machinery fell 7% with industrials down 9.7%. Even energy exports tumbled 8.7% on the month.

Although imports fell 1.5% in April, the decline was more muted. Imports of machinery tumbled 3.3% as industrials declined 8.4%. Automotive imports rose 1.5%, with energy posting an 11.9% gain.

Today's report points to little contribution of net trade to second-quarter GDP growth. The sharp appreciation in the Canadian dollar since April has increased the downside risk to exports, especially with the U.S. economy experiencing such a deep downturn and with import demand likely to gain upward momentum. Earlier this month, the Bank of Canada acknowledged that the rapid rise in the currency could have negative implications for the growth outlook if the pace of increase “proves persistent.”

We expect net trade to make a negative contribution to GDP growth during the second half of this year as import demand rises more quickly than exports. Nonetheless, we expect the impact of both fiscal and monetary stimulus to more than offset this drag and put Canadian quarterly growth back into positive territory in the second half of this year.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.