Canada’s trade balance swings back to deficit as imports jump to highest since 2019

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Canada’s merchandise trade balance swung back into a deficit position in March after two months of trade surpluses, with rising imports outpacing a slight increase in exports.

Imports surged 5.5 per cent in March compared with the previous month, to the highest level since May, 2019, Statistics Canada reported Tuesday. Exports rose a modest 0.3 per cent.

This shifted the merchandise trade balance to a $1.1-billion deficit from a $1.4-billion surplus in February, although that still left Canada with its first quarterly trade surplus in nearly five years.

“We had expected a return to deficits, but this is a bit earlier than we had projected,” Royce Mendes, senior economist at CIBC Capital Markets, wrote in a note.

The increase in imports was widespread across industries, with particular strength in energy-product imports, which rose 54.7 per cent in the month. Statscan attributed the increase partly to oil refineries in Texas coming back online after extreme winter weather and power outages squeezed production in February.

Energy-product exports, by contrast, fell 6.7 per cent in March as prices normalized after the February price shock.

“Natural-gas exports had more than doubled in February as a result of a sudden increase in prices caused by extreme weather conditions and power outages in the southern United States. Prices for natural-gas exports in March were almost back to January levels, accounting for the decline in the value of these exports,” Statscan said.

Two-way trade in automobiles rose in March, boosting both imports and exports. Trade in vehicles had declined sharply in February, as a shortage of semiconductor chips forced auto manufacturers to slow production on both sides of the border.

Statscan noted that the semiconductor shortage persisted in March but had a more moderate impact than in February. It added, however, that “slowdowns are expected to intensify and may have a greater impact on exports in April.”

Leaving aside energy, exports rose 2 per cent in March, supported by rising prices for metals and other commodities. This was offset by a steep drop in aircraft exports.

“Despite the deterioration in the trade balance, activity was generally solid, with a few one-time factors holding back exports. Indeed, the strength in imports reinforces that March was likely a very strong month for the domestic economy,” Benjamin Reitzes, director of Canadian rates and macro strategist at BMO Capital Markets, wrote in a note.

“April will likely be pretty volatile given the restrictions, but higher commodity prices should provide ongoing support to Canada’s trade balance,” he wrote.

Trade in services rose slightly in the month, with exports increasing 1.2 per cent and imports up 0.4 per cent.

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