OTTAWA – In May, Canada experienced its largest goods-trade deficit with the rest of the world in over two-and-a-half years. The decrease in commodity shipments contributed to lower exports, while increased motor-vehicle shipments helped buoy imports.

The trade balance result fell short of expectations, causing Canada’s surplus with the U.S. to narrow to its lowest level in two years. However, economists believe that this does not necessarily rule out another possible interest rate increase.

According to Statistics Canada, the country posted a merchandise-trade deficit of 3.44 billion Canadian dollars (approximately $2.59 billion). This significant deficit, the largest since October 2020, significantly deviated from the consensus forecast of a C$1.2 billion surplus.

Additionally, April’s surplus was revised downward by $1.05 billion to $894 million due to a decrease in export estimates and an upward revision of imports.

In the latest month, merchandise exports declined by 3.8% to C$61.53 billion, following a brief increase in April after three consecutive months of decline. Conversely, imports rose by 3.0% to C$64.97 billion.

Stephen Brown, Deputy Chief North America Economist at Capital Economics, noted that the decrease in export volumes presents a downside risk to the preliminary estimate of strong industry-level gross domestic product growth in May. This decline also suggests that Canada’s previous boost from easing supply shortages has largely dissipated.

Canadian Economic Outlook

According to Randall Bartlett, the senior director of Canadian economics at Desjardins, the drop in exports suggests that sectors such as agriculture and resource extraction might experience weaker performance in the second quarter compared to previous expectations. However, import volumes indicate that consumer demand remains strong. Bartlett estimates that real GDP growth is on track to reach nearly 2% annualized in the second quarter. Based on this, he maintains his view that the Bank of Canada will raise its policy rate by a further one-quarter percentage point in the upcoming meeting.

Energy Sector Export Decline

In May, exports of energy products decreased by 7.3% compared to the previous month, mainly due to lower prices. The decline was predominantly driven by a decrease in oil exports, following an increase in April. Additionally, exports of coal also declined as shipments of steelmaking coal to Asian markets decreased.

Exports to the U.S.

The United States, which is Canada’s largest export market by a significant margin, experienced a 2.9% decline in exports from Canada. In contrast, imports from the U.S. increased by 1.3%. As a result, Canada’s surplus with its neighbor narrowed to C$6.74 billion from $8.7 billion.

Exports to Other Countries

Exports to countries outside of the U.S. saw a notable decline of 6.6% in May. On the other hand, imports from abroad increased by 6.0%. Consequently, Canada’s goods-trade deficit with countries other than the U.S. expanded to approximately C$10.2 billion from C$7.8 billion.

It remains essential to closely monitor these developments in the coming months to gain better insights into the performance of Canadian economy.

Canadian Exports and Imports: May 2023


Despite a recent weakness in exports, the export values of farm, fishing, and intermediate food products have shown a significant jump in the first five months of 2023 compared to the same period last year.

Imports Rise in May

Imports in May saw an increase after three consecutive monthly declines. The rise was mainly driven by imports of gold and silver, as well as motor vehicles and parts, which reached a record-high value. Vehicle and parts imports have seen a substantial increase of over 22% compared to last year.

Trade Flows Deteriorate

On a volume-adjusted basis, exports experienced a decline of 2.5% in May, while total imports rose by 3.5%. Robert Kavcic, senior economist at BMO Economics, noted that this deterioration in trade flows suggests that net exports will make a minimal contribution to GDP growth in the second quarter. Trade flows have a tendency to swing widely.

Combined Trade Results

When combining international trade in goods and international trade in services, Canadian exports saw a decrease of 3.1%, while imports increased by 2.3%. Consequently, Canada’s trade surplus, taking into account both goods and services, widened from C$316 million in April to C$4.57 billion.

Canadian Economic Output

In April, Canadian economic output remained flat as modest growth in goods-producing industries was offset by continued weakness in wholesale trade and the impact of a strike by federal government workers. However, there are indications of a rebound the following month. Industry-level gross domestic product (GDP) showed no significant change in April, but according to Statistics Canada’s advance information, it is estimated to have risen by 0.4% month-over-month in May.

Canada’s Central Bank to Decide on Interest Rates

The Bank of Canada is set to announce its decision on interest rates this Wednesday. In its previous meeting, the central bank increased its benchmark rate by one-quarter point to reach a 22-year high of 4.75%. This move came as a result of strong consumer spending in the first quarter, prompting the central bank to resume its aggressive tightening after a brief pause.

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