Canada's trade deficit narrowed substantially in February thanks to a rebound in energy export prices from multi-year depths, but falling volumes of both exports and imports point to a struggling economy beneath the improved trade number.
Statistics Canada estimated the seasonally adjusted merchandise trade deficit at $984-million in the month, down from $1.5-billion in January, which itself was revised from an originally reported $2.5-billion.
The February result was much better than the $2-billion deficit that economists had anticipated. Put together, that means the cumulative trade gap for the first two months of the year was roughly $2-billion smaller than previously expected, suggesting trade's negative impact on overall economic growth in the first quarter may not be as bad as feared.
However, economists quickly noted that once price gains were factored out, volumes of both exports and imports were down in February, indicating generally weak demand, a bearish sign for what was already shaping up as a weak first quarter for Canada's oil-shocked economy.
"Don't pay too much heed to the 'improvement' in the trade balance," said Canadian Imperial Bank of Commerce chief economist Avery Shenfeld in a research note. "In real terms, trade [in February] was a deepening drag."
On a value basis, exports were up 0.4 per cent in February from January, while imports fell 0.7 per cent. But on a volume basis, exports were down 3.3 per cent. Imports were down 1.7 per cent, their second straight decline.
"The further decline in import volumes suggests that domestic demand slowed sharply in the first quarter," said David Madani, Canada economist for Capital Economics.
Exports of energy products, the country's single largest export category, spiked 14.9 per cent in value, thanks entirely to a 17.5-per-cent recovery in prices from January's depressed levels. Energy export volumes were down 2.3 per cent.
Meanwhile, manufacturing exports, which many economists have been counting on to lead Canadian growth this year, were down 2.3 per cent in February.
The big hit came from motor vehicles and parts, the country's second-biggest export sector, which slumped 15.1 per cent in value in the month. That included a dramatic 24.1-per-cent decline in passenger vehicles and light trucks, to their lowest level in more than a year.
The auto sector was slowed by a shutdown of the FCA Canada (formerly Chrysler) minivan plant in Windsor, Ont., for retooling, which closed the facility for the second half of the month, as well as the slow ramp-up of production of a new Ford vehicle at its Oakville, Ont., facility.
Benjamin Reitzes, senior economist at BMO Nesbitt Burns, noted that Canada's non-energy trade deficit in February was $7.2-billion, a four-month high.
"The narrower trade deficit is certainly welcome news, but the wider non-energy shortfall is troubling, as the growth outlook is in part dependent on improving non-energy trade," he said.
Exports to the United States, far and away Canada's biggest trading partner, rose 1.1 per cent in February from January. But exports to the rest of the world, excluding the U.S., were down 1.5 per cent.
The U.S. trade figures, also released Thursday, showed declines in volumes of both exports (down 2.3 per cent) and imports (down 3.8 per cent). Overall, the U.S. trade deficit contracted to $35.4-billion (U.S.) in February, from $42.7-billion in January. Some observers suggested that the rising U.S. dollar may be slowing demand for U.S. exports.
But economists cautioned that the unusually harsh winter weather in February may have constrained trade activity in both countries. They added that a U.S. port strike might also have been a significant factor.
"We will look for a thaw in spring reports," CIBC's Mr. Shenfeld said.
Statscan's big downward revision in the January deficit was the result of the arrival of administrative and survey data primarily on energy exports, which replaced the statistical agency's less detailed initial estimates. Statscan also revised the December deficit down to $986-million from the previously reported $1.22-billion.
Energy product exports
Month-to-month change (seasonally adjusted data)
SOURCE: Statistics Canada