CIBC Private Wealth
July 04, 2024
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Statistics Canada (StatsCan) reported Canada’s trade balance for the month of May yesterday. Data showed Canada ran a trade deficit for a third straight month. Trade activity is a critical component of Canada’s economy. Domestic demand is limited given our relatively low population, making exports a vital component for Canadian businesses. The drop in trade activity in May is reflective of slower demand both domestically and from abroad.
- The total value of exports from Canada fell by 2.6% in May over the previous month to $62.5 billion. This was the lowest value of Canadian exports since mid-2023. Softer foreign demand, due in part to tight financial conditions, has dragged down exports in recent months. In May, there was a significant drop in exports of metals and energy products.
- Domestic demand waned in May, dragging down imports. Imports fell by 1.6% to $64.4 billion. Canada purchased less foreign energy products and motor vehicles and parts over the month.
- With imports higher than exports, Canada ran a trade deficit of $1.93 billion in May. This was larger than the $1.32 billion deficit in April. Canada’s third straight deficit was also its largest since June 2023.
- Last week, StatsCan estimated that Canada’s economy grew by just 0.1% in May, following a 0.3% expansion in April. The decline in trade activity appears to have weighed on growth over the month. Net exports are a key component of Canada’s gross domestic product. Trade activity has waned in recent months, which has helped slow economic activity.
Given the overall slowdown in Canada’s economy, another rate cut from the Bank of Canada appears likely this year. More rate cuts from the BoC, compared to other central banks, could weaken the dollar. On the trade front, this would make exports from Canada relatively cheaper, which could boost export activity. However, a lower Canadian dollar could make imports more expensive.
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