The merchandise trade deficit unexpectedly narrowed to $0.7bn in May, from $4.3bn, as exports were boosted by the reopening of motor vehicle production plants and the rebound in crude oil prices.
Partial rebound still leaves exports down 30% on pre-pandemic level
- The merchandise trade deficit unexpectedly narrowed to $0.7bn in May, from $4.3bn, as exports were boosted by the reopening of motor vehicle production plants and the rebound in crude oil prices.
- Exports increased by 6.7% m/m in May although, illustrating the extent of the impact from rising energy prices, in volumes terms exports only increased by 4.5% m/m. Imports declined by 3.9% m/m in nominal terms and 4.0% m/m in real terms.
- Motor vehicle exports rebounded by $0.8bn in May, accounting for a significant chunk of the $2.2bn overall increase in nominal exports. But to put that rebound in context, motor vehicle exports fell by $5.3bn in April, and were still down by 80% y/y in May, with overall exports down 34% y/y. Since many motor vehicle plants didn’t reopen until well into May, we anticipate a more marked rebound in June, but shipments and production are likely to remain well below normal levels for some time. Crude oil exports increased by 26% m/m in May, but that rebound was almost entirely due to the recovery in prices.
- Somewhat surprisingly given the rebound in exports, motor vehicle imports fell by an additional 14.4% m/m in May. The problem seems to be an almost complete stoppage in imports of finished vehicles from countries like Japan and Germany.
- Overall, the narrowing in the trade deficit is welcome, but with exports and imports still both down by roughly one-third from a year ago, this is only the first baby step along the road to recovery – and, if the resurgence of infections south of the border holds back the US recovery, Canadian exporters could find that road to be a very bumpy one in the coming months. (See Chart 1.)
Chart 1: Nominal Monthly Exports & Imports ($bn)
Table 1: International Merchandise Trade Indicators
Selected Indicators (%m/m)
Terms of Trade
USD per CAD
Paul Ashworth, Chief North America Economist, firstname.lastname@example.org