Natural Gas and Lentils Drive Canadian Exports to Record

(Bloomberg) -- Canadian exports rebounded to a record high in March on energy and consumer goods such as red lentils, narrowing the trade deficit more than predicted.

The merchandise trade gap shrank to C$135 million ($98 million) from a revised C$1.08 billion in February, Statistics Canada said Thursday in Ottawa. Forecasts for the deficit ranged from C$550 million to C$1.8 billion, with a median of C$1 billion, according to a Bloomberg survey of economists.

Key Points

• Exports rose 3.8 percent to a record C$47 billion, rebounding from a 2.5 percent drop in February. Energy shipments climbed 7 percent to C$8.75 billion and consumer goods by 6.8 percent to C$6.12 billion, providing the largest upside contribution.
• Imports rose for a fourth straight month in March, by 1.7 percent to C$47.1 billion.
• The motor vehicle category was the biggest downside component, reducing exports by 0.3 percentage points. 
• Canada's trade surplus with the U.S. narrowed to C$4 billion from C$4.5 billion.

Big Picture

The world's 10th largest economy needs a sustained jolt to escape the funk caused by the downturn in the energy industry. Bank of Canada Governor Stephen Poloz said last month the recovery is being held back by inconsistent exports and a dearth of business investment.

Economist Reaction

• “This is a solid report overall,” Benjamin Reitzes, a Canadian rates and macro strategist at BMO Capital Markets in Toronto, wrote in a research note. “While trade continues to have trouble gaining consistent traction, the firm end to Q1 provides a nice handoff for Q2.”
• “The recent momentum in exports should continue, as the Canadian dollar remains under pressure” said Dina Ignjatovic, an economist at Toronto-Dominion Bank. “The key risk to the outlook remains any potential changes to trade policy with the United States.” Canada's dollar has depreciated by 6.3 percent over the last 12 months against the greenback, while U.S. President Donald Trump has accused Canada of unfair trade in softwood lumber and dairy products in recent weeks.

Other Details

• Cold weather in the northeastern U.S. boosted Canada's natural gas exports by 32 percent in March. The “other energy” category rose 64 percent, led by coal, as Cyclone Debbie disrupted production in Australia. Energy exports have climbed by 78 percent over the last 12 months.
• The “other food products” grouping rose 12 percent to a record C$1.4 billion on sales of yellow peas and red lentils to India.
• Record exports to non-U.S. nations narrowed the trade deficit for that group to C$4.1 billion from C$5.6 billion.
• The volume of exports advanced 2.5 percent and import volumes fell 0.2 percent, Statistics Canada said. Volume figures adjust for price changes and can be a better indicator of how trade contributes to economic growth.
• On a quarterly basis, the trade account worsened to a C$1.1 billion deficit between January and March after being roughly balanced in the prior three months.

--With assistance from Erik Hertzberg

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Stephen Wicary