Canada posts largest trade deficit since 2020 on falling prices

Canada’s merchandise trade balance unexpectedly recorded its largest deficit since October 2020, in large part due to lower energy prices.

The country posted a C$3.4 billion ($2.6 billion) trade deficit in May, from a downwardly revised C$894 million surplus a month earlier, with exports of crude oil and wheat decreasing the most, Statistics Canada reported Thursday in Ottawa. It’s the second deficit so far this year. Economists were anticipating exports to exceed imports by C$1.2 billion in May.

Total exports decreased 3.8% that month, while imports rose 3% after three consecutive monthly declines. Stripping away the impact of prices, Canada exports fell 2.5%, while imports climbed 3.5%.

Data suggest exports, which spurred output growth in the first three months of this year along with household spending, may no longer be one bright spot in the economy in the second quarter. July’s ongoing dockworker strike in British Columbia is also expected to weigh on shipments at the start of the third quarter.

Consumer consumption, on the other hand, appears to be holding strong. Imports of motor vehicles and parts jumped 4.5% in May, reaching a record-high C$11.3 billion. Higher imports and sales of passenger cars and light trucks suggest Canadians are still spending on major purchases despite the Bank of Canada’s aggressive tightening campaign.

In the first five months of 2023, imports of motor vehicles and parts were up 22.4% compared with the same period in 2022.

The stronger-than-expected economic momentum earlier this year prompted a rate hike last month, with economists now expecting another increase to borrowing costs either in July or September.