Canada’s trade balance narrowed last month as exports rebound with easing of pandemic restrictions

Canada’s trade deficit shrank dramatically in May as the economy began to reopen, but the flow remained far below normal in the fallout from global COVID-19 containment measures.

Statistics Canada reported Thursday that the merchandise trade deficit declined to $677-million in May from a revised $4.27-billion in April, as exports rebounded 6.7 per cent amid the gradual easing of pandemic-related restrictions in many major economies, including Canada and its chief trading partner, the United States.

But imports lagged behind the return of exports, dipping 3.9 per cent even as foreign suppliers began to resume production. Statscan attributed this largely to the significant transportation times for overseas shipments to reach Canada by sea, which effectively creates a delayed reaction for the import numbers to reflect the rise and fall of COVID-19 measures.

While the turnaround in exports and the trade balance would look huge under normal circumstances, they are tiny relative to the sector’s profound losses in the COVID-19 crisis. Total May trade remained nearly 30-per-cent below prepandemic levels.

“The narrowing in the trade deficit is welcome, but with exports and imports still both down by roughly one-third from a year ago, this is only the first baby step along the road to recovery,” said Paul Ashworth, chief North American economist for Capital Economics. “And if the resurgence of [COVID-19] infections south of the border holds back the U.S. recovery, Canadian exporters could find that road to be a very bumpy one in the coming months.”

Statscan also reported that international trade in services continued to decline in May, albeit more slowly, with exports down 2.6 per cent and imports off by 0.6 per cent. Total trade in services is down 35 per cent since the crisis began – with transportation and tourism services leading the way, as international travel remains largely halted.

Statscan said the auto sector was the big contributor to the upturn in goods exports, as North American makers restarted assembly plants. Exports of motor vehicles and parts surged 76 per cent in May, after they had been reduced to a trickle in April. Nevertheless, automotive exports were still only about one-quarter of what they were prior to the pandemic. Meanwhile, auto imports continued to slide, reflecting the shipping lags from overseas car makers affected by COVID-19 measures.

The harder the fall, the bigger the bounce

Merchandise exports by industry, % change, May 2020

Monthly change, May

Year-to-year change, May

Motor vehicles and parts

Energy products

Aircraft and other transp.

equipment and parts

Basic and industrial chemical,

plastic and rubber products

Metal ores and non-metallic

minerals

Industrial machinery,

equipment and parts

Electronic and electrical

equipment and parts

Forestry products and bldg.

and packaging materials

Metal and non-metallic

mineral products

Consumer goods

Farm, fishing and

intermediate food products

-80

-60

-40

-20

0

20

40

60

80%

JOHN SOPINSKI/THE GLOBE AND MAIl

SOURCE: Export Development Canada

The harder the fall, the bigger the bounce

Merchandise exports by industry, % change, May 2020

Monthly change, May

Year-to-year change, May

Motor vehicles and parts

Energy products

Aircraft and other transp.

equipment and parts

Basic and industrial chemical,

plastic and rubber products

Metal ores and non-metallic

minerals

Industrial machinery,

equipment and parts

Electronic and electrical

equipment and parts

Forestry products and bldg.

and packaging materials

Metal and non-metallic

mineral products

Consumer goods

Farm, fishing and

intermediate food products

-80

-60

-40

-20

0

20

40

60

80%

JOHN SOPINSKI/THE GLOBE AND MAIl

SOURCE: Export Development Canada

The harder the fall, the bigger the bounce

Merchandise exports by industry, % change, May 2020

Monthly change, May

Year-to-year change, May

Motor vehicles and parts

Energy products

Aircraft and other transp.

equipment and parts

Basic and industrial chemical,

plastic and rubber products

Metal ores and non-metallic

minerals

Industrial machinery,

equipment and parts

Electronic and electrical

equipment and parts

Forestry products and building

and packaging materials

Metal and non-metallic

mineral products

Consumer goods

Farm, fishing and intermediate

food products

-80

-60

-40

-20

0

20

40

60

80%

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: Export Development Canada

Oil exports also bounced back from their April collapse, jumping 26.5 per cent, mostly owing to a rebound in prices from record lows. Statscan noted that by value, crude oil exports were still only about one-third of what they were early in the year.

Indeed, in general, the export segments that were hit hardest were the biggest gainers when the containment measures eased – which is no surprise given the nature of the forced shutdowns, said Peter Hall, chief economist at Export Development Canada.

“This is happening the way that we said it was going to – the deeper the drop, the bigger the bounce,” Mr. Hall said. “But this is not an acknowledgement that we’re back to level. Far from it.”

Given that many sectors only began to reopen in the middle of May, and that the resumption of activities accelerated and widened in June, economists believe trade figures should show further leaps in recovery over the next couple of months.

However, they caution that with the pandemic still far from over in many parts of the world, international trade is unlikely to return to normal levels for many months to come. They say the recovery will be choppy and uneven, as virus-containment efforts continue to disrupt normal trade flows and supply chains.

And the United States – which accounts for roughly two-thirds of Canadian exports – stands as a major source of uncertainty for Canada’s trade recovery, as the U.S. wrestles with a recent troubling resurgence in COVID-19 infection rates.

“What really could put a wrench into the spokes of this is a second wave of infections,” Mr. Hall said. “You know that if that doesn’t go well, some sort of partial or complete shutdowns is going to occur.”

“The COVID data coming out of Johns Hopkins [University] is the world’s greatest leading indicator of [economic] activity now. It supplants all the rest.”

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