Surging exports drive $1.4-billion trade surplus, largest since 2014

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Canadian merchandise exports surged across every industry in January, leading to Canada’s first trade surplus since May, 2019, and adding fuel to the narrative about a stronger-than-expected economic rebound in the opening months of 2021.

Canada’s trade surplus hit $1.4-billion in January, the largest since July, 2014. This was driven by an 8.1-per-cent month-over-month growth in the export of goods, Statistics Canada reported Friday.

“It’s a blockbuster month, which really surpassed all expectations,” said Peter Hall, chief economist with Export Development Canada. “Outside of the volatility of last year, you’ve got to go back to 1995 to find a single month number that’s anything close.”

The upswing in demand for Canadian products is coming largely from the United States, where the economy is recovering rapidly on the back of massive fiscal stimulus and a robust COVID-19 vaccination campaign.

A U.S. home-building spree is driving demand for forestry products, which pushed lumber exports up 30.4 per cent in January to a record $2.1-billion. Energy exports, which mostly go to the U.S., were up 5.9 per cent, with volumes surpassing prepandemic levels even as prices remain lower. Meanwhile, exports of consumer goods were up 11.6 per cent in the month.

“We are participating in the fundamental strength of the U.S. economy,” Mr. Hall said in an interview. “On net, the rest of the world didn’t do much for us. There’s up and down in countries, but they all offset each other. This is all really about the U.S. this time around.”

The numbers were supercharged by several unusual sales. Aircraft and other transportation equipment exports were up 72.3 per cent in January, after a Canadian airline retired a large number of planes from its fleet and sold them to buyers in the U.S. Canadian gold companies also sold an abnormally large number of gold bars to retail investors south of the border.

“It is important to highlight that part of January’s export strength is transitory,” Toronto-Dominion Bank economist Omar Abdelrahman wrote in a note, referring to the aircraft and gold bar sales.

“Still, excluding these components would leave exports ... up more than 4 per cent on the month. In particular, Canadian exports have recently been aided by strong momentum in global demand and prices for some commodities,” Mr. Abdelrahman wrote.

Importantly for Canada’s economic recovery, the export strength was broad-based. All 11 merchandise trade categories showed growth in January. And the volume of exports was up 5.1 per cent, meaning the headline growth number was not simply driven by higher prices – rather, Canadian companies were shipping more goods across the border.

The export of services saw a slight increase in January. But overall, service exports remain far below prepandemic levels, owing to ongoing constraints to travel and tourism.

On the flip side of the equation, imports were up 0.9 per cent in January, rising in seven of 11 product categories. Energy product imports were up 20.5 per cent, led by diesel shipments, while electronic and electrical equipment imports rose 2.9 per cent.

Overall, the trade numbers add to recent Canadian and U.S. economic data that show an earlier and stronger recovery than markets and central bankers were forecasting at the start of the year.

“This is just another sign that the economy weathered the second wave [of COVID-19 cases] impressively well,” Benjamin Reitzes, Canadian rates and macro strategist with BMO Capital Markets, wrote in a note.

“Expect some deterioration in the trade balance next month as Canada doesn’t have an unlimited stock of used planes, but the underlying figures (ex. airplanes) sitting around balance, with commodity prices rising further since January, is certainly encouraging,” he wrote.

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