As the pandemic unfolded, Canada’s international trade activity dropped sharply in March. Canadian merchandise exports fell close to 5 percent in both value and volume terms. Imports declined 3.5 percent (close to 6 percent in volume terms). Looking at it from a year-over-year basis, both exports and imports were down almost 10 percent. Canada's trade deficit widened from $894 million in February to $1.4 billion in March. While the numbers are bad, we know the impact in April will be more severe, as the full impact of the Canadian and US lockdowns are felt.
From an industry perspective, the transportation sector has been hit hard. The lockdown led to production stoppages in the auto manufacturing industry that triggered strong declines in both exports and imports of motor vehicles and parts. Exports of passenger cars and light trucks decreased by 9.8 percent in March, while imports fell by 6.2 percent. When looking at engines and parts, the drop was more dramatic, with exports dropping 28.9 percent and imports decreasing by 23.0 percent.
Energy exports decreased by 7.4 percent in March. Exports of crude oil were down 7.9 percent on both lower prices as well as lower volumes, reflecting weaker global demand and excessive supply. Exports of refined petroleum products decreased 9.8 percent, mainly due to lower prices as volumes rose in March.
Monthly exports of services decreased 7.2 percent, while imports of services fell 11.5 percent. Keep in mind that trade in services is a small share of overall trade, but it has been a rising share in recent years. However, a defining characteristic of this recession is how hard services have been hit during the shutdown.
Given the health crisis and the focus on issues related to adequacy of essential medical supplies, it is worth highlighting the trends in this category that rarely in the past received much attention.
Personal protective equipment exports (PPE) declined 4.9 percent to $535 million year-to-date in 2020. Lower exports to the United States (-$25.1 million) were moderated by an increase in exports to China (+$7.7 million). Imports of PPE declined by 1.9% to $849 million year-to-date compared with 2019. The story may look different in April as the Canadian government committed to ramping up procurement of PPE.
These releases are troubling, as Canada is an export-oriented economy. The April trade data will be key to understanding the full implications of the lockdown on Canada’s trade performance. In addition, there have been company reports suggesting that oil production volumes will have declined further.
In United States, the major economic release was the Institute for Supply Management non-manufacturing index which is based on surveys of more than 400 non-manufacturing (or services) firms' purchasing and supply executives for April. The index dropped 10.7 points to a reading of 41.8. Anything below 50 indicates economic contraction. Only 2 of 18 service industries posted growth—they were public administration and finance.
Craig Alexander is the first Chief Economist at Deloitte Canada. He has over twenty years of experience in the private sector as a senior executive and leading economist in applied economics and forecasting. He performed macroeconomic research, regional and sector analysis, and fiscal market forecasting and modelling. Craig is a passionate public speaker and holds a graduate degree in Economics from the University of Toronto.