Canada’s beleaguered energy exports roared back to life in March, leading a broad-based trade rebound that may signal a turning point in the economy’s two-quarter growth slump, economists said.
Statistics Canada reported that the country’s merchandise trade deficit totalled $3.2-billion in March, only a slight improvement over February’s $3.4-billion. But unlike in February, when both exports and imports slumped, the March numbers showed an encouraging rebound on both sides of the ledger. A 2.5-per-cent rise in imports was topped by an even bigger 3.2-per-cent rebound in the country’s all-important exports. In volume terms (excluding the effects of price changes), exports rose 2.6 per cent, while imports increased 1.3 per cent.
The recovery, which displayed strength nearly across the board, may be a sign that the struggling economy is turning a corner, after posting little growth at all over the fourth quarter of last year and the first quarter of 2019.
“The details point to broad strength in exports, while the import side of the ledger suggests the consumer is rebounding, and business investment ended the first quarter on a positive note,” Bank of Nova Scotia economist Derek Holt said in a research note. “[The trade report] supports the narrative in favour of a rebound from little Q4/Q1 growth.”
Economists noted that despite the March recovery, overall first-quarter trade was a major drag on the Canadian economy, with export volumes down at an annualized rate of more than 9 per cent in the quarter. They estimate that first-quarter gross domestic product probably grew at less than 1 per cent annualized, coming off a fourth quarter in which growth was a tiny 0.4 per cent.
Nevertheless, they were encouraged by the widespread growth in exports in the March report, as nine of 11 sectors showed gains. In particular, they pointed to the nearly 8-per-cent jump in the energy sector, which has been at the centre of the export slowdown since last fall, hurt by slumping prices for Canadian oil and Alberta’s government-imposed production cuts to deal with critically high oil inventories. The rebound came as Alberta began to gradually reduce the size of its cuts.
“Energy exports have now retraced most of the decline from late last year, as prices and volumes have recovered,” Bank of Montreal economist Benjamin Reitzes said in a research note.
On the import side, eight of 11 sectors posted growth, led by a nearly 7-per-cent rise in consumer goods – an indication of recovering consumer demand. Imports of machinery and equipment rose 2 per cent, an indication of solid business investment, an important driver of economic growth.
Nathan Janzen, senior economist at Royal Bank of Canada, suggested that the March trade rebound is evidence that unusually harsh winter weather was a major culprit behind February’s slumping numbers. The conditions caused rail shutdowns and almost certainly disrupted a wide range of economic activities.
“The bounce-back in March adds to the evidence that the February weakness was more head fake than a new trend,” he wrote in a research note.
The improved numbers in March imply that the trade sector entered the second quarter with upward momentum, suggesting that the outlook for economic growth in the quarter now looks brighter than previously thought. Some economists suggested that second-quarter GDP could top 2 per cent annualized, considerably stronger than the Bank of Canada’s recent forecast of 1.3 per cent.
However, Mr. Janzen cautioned that the overall landscape for trade, which has been struggling for months amid slowing global demand and escalating U.S.-China trade tensions, “still looks unspectacular.”
“Non-energy exports were still down from a year ago in March,” he said. “The U.S. industrial sector, a key customer for Canadian exports, continues to grow, but renewed saber-rattling in the U.S.-China trade dispute is still contributing to uncertainty around the future of global trading relationships – with the potential to disrupt Canadian supply chains.”