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January merchandise trade balance posted a surplus of USD1.41
billion, following a USD1.98 billion deficit in December.
The value of exports increased in all 11 merchandise categories
compared to the previous month.
The large trade surplus was related to a couple large one-off
shipments to the US rather than a sudden structural change to
Canada's trade dynamics.
This was another release showing the considerable resilience to
the second wave of COVID-19 cases and associated containment
measures.
This was the first substantial international merchandise trade
surplus for the Canadian economy in over six years. Stranger is the
fact that it happened during a month of renewed regional
restriction measures. This was expected to be a challenging time
for the Canadian economy and for some exporters it probably was
challenging. For example, exports to the European Union fell 52%
month-on-month (m/m). However, Canada benefited from surging US
demand, as their manufacturing sector continues to see growth,
large stimulus packages have been passed through government, and
vaccination efforts accelerate.
While exports saw some transitory distortions, the overall
strength of exports cannot be dismissed. Statistics Canada
highlighted a one-off sale of used aircrafts to a US airline,
leading to a 72.3% rise in exports within the aircraft and other
transportation category. Exports of consumer goods rose 11.5% m/m
as large sale of gold bars was made to US retail investors. Within
the forestry and building material category, both building and
packaging materials and lumber and other sawmill products export
sub-categories continue to benefit from the strong housing market
in the US, rising 16.5% m/m and 30.4% m/m respectively. Moving in
tandem as of late, these sub-categories have seen growth in 10 of
the last 12 months. In particular, the value of lumber and other
sawmill exports is at a record high and more than double year-ago
levels. This strength continued despite US housing starts easing in
January due to unseasonably cold temperatures. Strong Canadian
lumber exports are also benefitting from record high prices caused
by sawmill shutdowns during the first wave of the pandemic. Export
of energy products also rose a healthy 5.9% m/m, as demand and
prices also continue to rise. Excluding the two categories
distorted by one-off effects, exports values were still up 4.8%
m/m.
Helping with the trade surplus was more modest growth in
imports, with value growth in seven of the 11 product categories.
The 20.5% jump in energy imports—breaking three months of
declines—was offset by decreases in aircraft and other
transportation, motor vehicles and parts, and consumer goods. It is
also worth noting that the deficit in international services trade
widened to USD236 million but has remained well below the typical
service trade deficits seen prior to the pandemic. The small
surplus within travel services will continue until travel
restrictions lift and consumers are comfortable traveling abroad
again.
Demand for Canadian exports continues to benefit from a rapidly
expanding US economy and an uplift to oil and lumber prices. Strong
IHS Markit US Manufacturing PMI readings continued in February
which bodes well for Canadian exports. Since we cannot count on
similar one-off boosts to exports in future releases, net trade
will remain a drag on Canada's real growth this year but is
expected to add to 2022 growth.
Posted 17 March 2021 by Evan Andrade, Sr. Economist, Economics & Country Risk, IHS Markit