Canada’s merchandise trade deficit with the world widened from $732 million in December 2019 to $1.5 billion in January, says Statistics Canada in a report released on Friday.

The federal agency said Canada’s merchandise exports fell 2.0 per cent in January, in part due to lower exports of motor vehicles, while imports were down 0.5 per cent mostly on lower imports of pharmaceutical products. 

Total exports fell to $48.1 billion, with nine of 11 product sections posting declines. In real (or volume) terms, exports were down 3.1 per cent, it said.

“Exports of motor vehicles and parts registered the largest decline in January, down 4.1 per cent to $7.3 billion, the lowest level since May 2018. This was primarily the result of lower exports of passenger cars and light trucks (-8.2 per cent), reflecting longer temporary shutdowns at certain assembly plants, as well as the recent closure of the General Motors plant in Oshawa. For the same reasons, imports of motor vehicle engines and parts (-7.1 per cent) were also down substantially in January,” said StatsCan.

“Exports of energy products were down 1.7 per cent in January, mainly on decreased exports of natural gas (-26.2 per cent). Temperatures across much of the United States were above typical January levels, resulting in lower demand for natural gas and thus a decrease in export volumes as well as prices. Exports of coal (-23.6 per cent) also fell in January, notably on lower exports to Japan.”

The federal agency said total imports were down to $49.6 billion. 

“After surpassing the $50.0 billion level for most months in 2018 and 2019, total imports have been below this threshold for the past three months. Year over year, total imports fell 4.9 per cent compared with January 2019, the strongest year-over-year decline in more than 10 years. In real (or volume) terms, imports (-0.5 per cent) also decreased in January.”

Statistics Canada said imports of energy products rose 7.6 per cent in January on higher imports of crude oil (+26.4 per cent), which reached the $2.0 billion mark for the first time since 2014. Higher imports of crude oil from the United States to Eastern Canadian refineries coincided with production disruptions on the Canadian North Atlantic oil platforms, it added.

“Despite improved global trade sentiment early in the year, the Canadian trade picture is looking worse for Q1. Of course, these numbers come well before the real outbreak in COVID-19 concerns, so (unlike employment and housing), trade wasn’t exactly on a strong footing heading into the shock,” said Robert Kavcic, Senior Economist with BMO Economics.

“With the spread of COVID-19 taking centre stage, most lagged data releases such as today’s will likely be brushed off by the markets and the Bank of Canada – at least temporarily. That said, this clearly disappointing release suggests that the Canadian economy started 2020 on weak footing – absent any COVID-19 impacts. The January trade figures pose further downside risk to our Q1 GDP tracking of 0.8 per cent annualized growth,” said Omar Abdelrahman, Economist with TD Economics.

“Importantly, the outlook for trade has deteriorated following the COVID-19 outbreak. Starting the year, the Phase 1 Trade Deal, USMCA, and signs of a bottoming out in global manufacturing were all potential tailwinds that could provide modest support to exports. These events are now largely in the rear-view mirror. We are in the process of downgrading our forecasts for the year as a whole, and a sizeable chunk of that downgrade is likely to be from trade and supply chain-related impacts. Additionally, the commodity price channel will also impact Canada’s terms of trade and incomes in the near term, helping deliver a one-two punch to the economy early in the year.”