Canada Posts Unexpected Trade Surplus on Record Exports to U.S.
After a difficult end to 2018, Canadian shipments abroad are signaling renewed strength that will be needed for the economy.
(Bloomberg) -- Canada’s trade balance unexpectedly swung into surplus for the first time in 10 months on a broad-based jump in exports, one more sign the economy has returned to a more solid footing.
The country ran a rare trade surplus of C$762 million ($582 million) in May, from a deficit of C$1.1 billion previously. It’s only the fourth surplus for the country since oil prices began declining in 2014, driven by a 4.6% increase in exports.
After a difficult end to 2018, Canadian shipments abroad are signaling renewed strength that will be needed for the economy to maintain its momentum in coming months. Data already point to a much stronger-than-expected rebound, led by trade, and that should take pressure off the Bank of Canada to match any easing trend from the U.S. Federal Reserve.
“Canada’s strong May trade surplus, with good breadth in exports, adds support to the Bank of Canada’s expectation that growth will continue firming from the second quarter onward and keep the target overnight rate on hold even if the Fed cuts,” Brett House, deputy chief economist at Bank of Nova Scotia, said by email.
The Canadian dollar extended gains after the report, trading 0.2% higher at C$1.3077 per U.S. dollar at 9:47 a.m. in Toronto. Canadian two-year bond yields rose to 1.49% from 1.48% Tuesday.
Economists had been anticipating the trade gap would actually widen to C$1.7 billion in May. Exports to the U.S. increased 3.7% to a record C$39.3 billion, widening Canada’s trade surplus with its biggest trading partner to C$5.9 billion -- the largest since October 2008.
May’s export jump comes on the heels of other strong gains, bringing the increase in merchandise shipments to 15% since December. That’s the biggest five-month gain in Canadian exports in more than a decade.
Export volumes -- the variable that goes into calculations of real growth -- were up 4% in May, the most since August 2016.
It’s a dramatic turnaround for the sector. Amid falling oil prices at the end of last year, exports had dropped by 8.1% during the second half -- with the weakness spreading through the rest of the economy over the winter. As a result, Canada suffered through two straight quarters of flat growth.
A rebound, however, seems to have taken root. Improving prospects in the oil sector are helping, but the recovery is widespread. Nine of 11 sectors tracked by Statistics Canada recorded an increase in exports in May, led by a 12.4% jump in motor vehicle shipments. Non-energy exports are up 6.3% since December.
The improving export picture has also coincided with strong economic data across the board over the past month. Gross domestic product came in stronger-than-expected for April, housing markets in some major cities are stabilizing, while business and consumer sentiment appear to be on an upswing.
Some economists now anticipate annualized growth could come in closer to 3% in the second quarter, well above Bank of Canada expectations for 1.3%.
--With assistance from Erik Hertzberg.
To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net
To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen Wicary
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