The 8.1% m/m surge in exports in January was partly due to temporary factors but, amid strong global demand for commodities, exports are doing better than we expected a few months ago.
Temporary factors behind rare trade surplus
- The 8.1% m/m surge in exports in January was partly due to temporary factors but, amid strong global demand for commodities, exports are doing better than we expected a few months ago.
- The sharp improvement in the goods trade balance to a $1.4bn surplus in January, from a downwardly revised $2.0bn deficit in December, was much better than the consensus estimate of a $1.4bn deficit. The improvement was due to an 8.1% m/m jump in exports, which far outpaced a 0.9% rise in imports.
- Of the overall 8.1% gain, 2%-points was due to a 125% rise in aircraft exports, which Stats Can said was due to an airline retiring some of its fleet and selling the planes. A surge in gold exports, to retail customers in the US, also boosted exports. These two factors will probably be reversed in the February data.
- Nevertheless, the remaining export data were also strong. While the 5.9% m/m rise in energy exports was mainly due to higher prices, the 1.7% m/m increase in export volumes still means they moved back to pre-pandemic levels. Forestry exports rose by 11% m/m, which was spread evenly between higher export volumes and prices amid elevated construction demand in the US. Even motor vehicle exports edged up by 0.5%, despite the ongoing supply-chain issues related to semiconductor shortages.
- The import data were more mixed. The 3% m/m rises in imports of industrial equipment & machinery and electronics & electrical equipment were encouraging, but the further 0.7% m/m fall in imports of consumer goods and the 26% m/m plunge in aircraft imports confirm that parts of domestic demand are still struggling.
- With export volumes rising by 5.1% m/m and import volumes by 1.0%, the data suggest that net trade was behind the unexpectedly strong preliminary estimate that GDP rose by 0.5% m/m in January. Even with natural gas exports apparently surging last month due to supply issues in the US, it is likely the trade balance deteriorated in February. And the issue facing policymakers is that, while the natural resource sectors are doing well, the surveys suggest the outlook for traditional exporters remains poor. The export orders series of the Markit manufacturing PM was just 50.2 in February and, in the CFIB survey, the share of firms reporting weak foreign demand as a limit on production is still elevated. (See Chart 1.)
Chart 1: Surveys of Export Orders & Foreign Demand
Source: Markit, Refinitiv
Table 1: International Merchandise Trade Indicators
Selected Indicators (%m/m)
Terms of Trade
USD per CAD
Stephen Brown, Senior Canada Economist, +1 416 874 0514, email@example.com