OTTAWA — Canada's trade deficit shrank in May as auto industry exports picked up after disastrous performance in April, but exports were still down sharply compared with a year ago.
Statistics Canada reported Thursday the merchandise deficit contracted to $677 million in May compared with a deficit of $4.3 billion in April when exports and imports both plunged due to the COVID-19 pandemic.
Economists on average had expected a deficit of $3 billion, according to financial markets data firm Refinitiv.
Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital markets, said that following a total collapse in April, trade flows were mixed in May.
"Despite the narrowing of the merchandise trade deficit, trade flows remain at around two-thirds of pre-COVID levels, leaving plenty of wood to chop in the recovery," Reitzes wrote in note.
Total exports rose 6.7 per cent in May to reach $34.6 billion, however Statistics Canada noted that they were down 34.1 per cent compared with a year ago.
Exports of motor vehicles and parts were up 76.2 per cent compared with April, but down 77.0 per cent compared with a year ago. Energy product exports were up 14.5 per cent, but down 59.6 per cent compared with May 2019.
Meanwhile, imports fell 3.9 per cent in May to $35.3 billion and were down by nearly a third compared with year ago.
Imports of basic and industrial chemical, plastic and rubber products were down 14.4 per cent in May and down 24.7 per cent from a year ago. Imports of motor vehicles and parts were off 14.8 per cent in May and down 83.8 per cent from May 2019.
In volume terms, exports were up 3.8 per cent in May, while imports fell 6.7 per cent.
TD Bank economist Omar Abdelrahman noted there are conflicting signals regarding the future path for international trade.
"On the one hand, an encouraging rebound to expansionary territory in U.S. manufacturing sentiment in June bodes well for Canadian firms, especially with the U.S. accounting for a disproportionate share of Canada's exports," Abdelrahman wrote in a report.
"That said, the recent spike in new COVID-19 cases south of the border and the resulting halt to reopening plans in some states may slow down the recovery."
Meanwhile, monthly exports of services fell 2.6 per cent to $7.9 billion in May, while imports of services decreased 0.6 per cent to settle at $7.8 billion.
Canada's trade deficit for goods and services combined totalled $562 million in May.
This report by The Canadian Press was first published July 2, 2020.
Craig Wong, The Canadian Press