Canadian Trade Gap Widens in March on Falling Oil, Auto Exports

(Bloomberg) -- Canadian exports plunged 4.7% in March to a more than two-year low as oil prices collapsed and the coronavirus pandemic shut down economies across the world. Export volumes dropped by the most since 2009.

The drop in goods shipments widened the trade deficit to C$1.4 billion ($1 billion), from a revised C$894 million in February, the agency said. Imports also tanked 3.5% amid waning demand in Canada to a level not seen since October 2017. Combined, Canadian exports and imports were the lowest since January 2018.

The substantial depreciation of the Canadian dollar versus the U.S. dollar in March made the import and export decreases appear less extreme; in volume terms, exports were down 4.8%, the biggest one-month since the 2009 recession. Import volumes fell by even more, down 5.8%.

“As we had expected, the significant move weaker in the Canadian dollar blunted a significant portion of the impacts on the nominal values of exports and imports by keeping prices higher in CAD terms,” Royce Mendes, an economist at Canadian Imperial Bank of Commerce, wrote in a note. “Given that shutdowns in North America only really began in earnest in the latter half of March, two-way trade is likely to have sharply deteriorated again in April. That could, however, be the worst of it, with gradual re-openings now on the horizon.”

Key Insights

The report illustrates the extent to which trade collapsed during the first month when social distancing measures took effect. In Canada's case, the economy is facing a double whammy of the pandemic and tanking oil prices.
Merchandise trade figures are expected to decrease even more severely in April, which marks the first full month of social distancing measures and the closing of nonessential businesses
The substantial depreciation of the Canadian dollar versus the U.S. dollar in March made the import and export decreases appear less extreme; in volume terms, exports were down the most since 2009
For the first quarter, exports declined by 3%, marking the third consecutive quarterly decline; energy product and motor vehicles and parts contributed most to decrease

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Energy exports dropped 7.4% in March, as shipments of crude oil plunged 7.9% on both lower prices and lower volumes due to weaker global demand
The auto sector also saw sharp declines in both imports and exports, as some plants stopped production or shifted to production of medical equipment and physical distancing measures were introduced
Auto exports fell 14.4%, while imports dropped 13.1%