Higher energy prices gave Canada’s trade surplus a big boost , but also masked some of the weaknesses the economy is experiencing, economists say.
Canada’s trade surplus rose for the second consecutive month in April, Statistics Canada said on Tuesday, with export gains recorded in nine of the 11 product categories.
Here’s what economists are saying about the latest merchandise trade data.
‘Not just about energy’: National Bank of Canada
“The rise in exports in April wasn’t just about energy,” Jocelyn Paquet, a senior economist at National Bank of Canada, said in a note, pointing to the 32 per cent increase in wheat exports to China in April that boosted the agriculture category and rebounding vehicle and auto parts exports.
“The only downside for exports was the sharp decline in the metal and non-metallic mineral products category,” she said.
She said the “expected” drop in precious metal prices was the culprit behind shipments of unwrought gold, silver and platinum falling by a quarter in April from March, although they were still up 72.4 per cent year over year.
Paquet said the domestic spending boom in artificial intelligence and data centres was why imports of computers and peripherals rose to a record high.
‘Biggest knock’: Sibley Creek
“The biggest knock to this trade report is that directionally, it’s moving against Prime Minister (Mark) Carney ’s efforts to diversify trade away from the U.S.,” Jay Zhao-Murray, chief economist at independent macroeconomic researcher Sibley Creek, said.
Trade with countries other than the United States fell 4.8 per cent in April after hitting a record high in March, Statistics Canada said in the report, adding that was mostly due to a drop in exports of unwrought gold to the United Kingdom.
Canada managed to increase its exports to China in April, but he said the total value of those exports came in just slightly higher than the increase in the value of exports to the United States.
“The U.S. is a behemoth,” he said. “Canada’s second- and third-largest trade partners don’t even come close.”
‘Important to watch’: Royal Bank of Canada
“Import trends will also be important to watch,” Abbey Xu, an economist at Royal Bank of Canada, said in a note.
She said machinery and equipment purchases are key indicators of business investment and an “early signal of how firms are responding to an uncertain trade environment.”
Imports of electronic machinery and equipment rose 3.2 per cent on a volume basis while industrial machinery and equipment imports dropped, though she said imports of the latter are still up year over year.
“This adds to evidence that business investment spending has started to edge higher despite elevated uncertainty,” she said.
RBC estimates that about 87 per cent of exports to the U.S. entered the country duty-free thanks to exemptions under the Canada-U.S.-Mexico Agreement ( CUSMA ) and other policies.
“Significant uncertainty remains, with negotiations on CUSMA renewal expected to intensify in coming months,” Xu said.
‘Bodes well for GDP’: Capital Economics
“The improvement in Canada’s goods trade balance bodes well for gross domestic product ( GDP ) growth at the start of the second quarter,” Ariane Curtis, senior North America economist at Capital Economics Ltd., said in note.
She said the three per cent month-over-month increase in export volumes more than outweighed the slight increase in import volumes.
She said the trade numbers likely support Statistics Canada’s flash estimate for April GDP to come in at 0.4 per cent.
Energy aside, exports also rose in categories such as aircraft and transportation equipment and industrial machinery, equipment and parts. Wheat shipments to China surged, helping farm, fishing and intermediate food exports “reach their highest level in over a year,” she said.
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