Canada’s trade gap swells as COVID-19 shutdowns, sinking energy prices take a toll

Canada’s trade statistics for March bear the sharp bite of COVID-19 shutdowns on both exports and imports, despite efforts to assure the continued flow of goods across the Canada/U.S. border.

Statistics Canada reported Tuesday that exports of goods slumped 4.7 per cent in March from February, battered by plunging oil prices and disruptions to auto-sector supply chains, while imports fell 3.5 per cent. As a result, the merchandise trade deficit swelled to $1.4-billion in March from $894-million in February.

And even those numbers were flattered by a slumping Canadian dollar, which served to elevate the price of both imports and exports when converted into Canadian currency. Statscan said that when calculated in U.S.-dollar terms, goods exports were down 9.1 per cent and imports were down 8.1 per cent.

Statscan reported even steeper declines in trade of services in the month, with exports down 7.2 per cent and imports down 11.5 per cent from February.

All together, the country’s total trade in both goods and services – both imports and exports combined – was down $6.3-billion in March from February, a 5.2-per-cent decline.

The deterioration came as COVID-19 containment measures ramped up dramatically from mid-March on, not only in Canada and its biggest trading partner, the United States, but globally. The statistical agency warned that the worst of the trade numbers are still to come.

“With a full month of physical-distancing policies in place in April, merchandise trade values are expected to decrease more severely next month,” it said.

Economists agreed that the March numbers provide only a glimpse at what could be much deeper trade slowdowns from the COVID-19 lockdowns. But they see light emerging at the end of the tunnel.

“Given that shutdowns in North America only really began in earnest in the latter half of March, two-way trade is likely to have sharply deteriorated again in April. That could, however, be the worst of it, with gradual reopenings now on the horizon,” Royce Mendes, senior economist at Canadian Imperial Bank of Commerce, said in a research note.

Despite agreements by Canadian and U.S. officials to keep the borders open for the movement of goods, the slowdowns in consumer demand, business shutdowns and severely disrupted global supply chains slammed the brakes on trade. Statscan said the biggest impact was felt in the auto sector, where production stoppages, as well as changeovers in some facilities to producing much-needed medical equipment, led to sharp declines in the movement of both vehicles and parts. Passenger-vehicle exports were down nearly 10 per cent in the month, while exports of engines and other parts tumbled 29 per cent.

“These production stoppages continued throughout the month of April and into May. Low levels of exports and imports for these products should therefore be expected until production resumes,” the agency said.

Meanwhile, falling demand and prices weighed heavily on energy products, Canada’s single biggest export sector, which Statscan cited as the main reason Canadian exports fared worse than imports in March. Crude oil exports fell nearly 8 per cent. Again, Statscan warned that worse is yet to come for the sector.

“Since fluctuations in oil prices are normally observed with a certain delay in exports statistics, the recent collapse in market prices could affect crude-oil export values more severely in future months,” it said.

On the services side, the shutdown of travel because of COVID-19 restrictions was the biggest factor weighing on the March data. Statscan said exports of travel services were down 21 per cent, reflecting a sharp decline in travel to Canada. (The consumption of Canadian travel services by foreign visitors is classified as an export.) Imports fell even more severely, down 33 per cent, as restrictions on Canadian travel abroad tightened rapidly during the second half of the month.

U.S. trade data were also published Tuesday morning, showing even sharper declines than the Canadian numbers. U.S. exports plunged 9.6 per cent in March from February, while imports tumbled 6.2 per cent. The U.S. trade deficit widened to US$44.4-billion, from US$39.8-billion in February.

“Factory closures across the world wreaked havoc on supply chains, resulting in both export and import contractions,” Sri Thanabalasingam, senior economist at Toronto-Dominion Bank, said in a research note. “April will likely be no better for international trade, but we may start seeing improvements in May as states begin to reopen their economies. However, with social-distancing measures reducing the operating capacity of businesses, and tourists still wary of travel, trade will recover very gradually in the months ahead.”

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