StatCan reports Canada’s annual trade balance will end in a deficit, capping a year no economist could have predicted.
Cargo Ship arriving to the Port, Vancouver, British Columbia, Canada.
At the end of a year unlike any other, StatCan has reported that Canada will close out 2020 with a trade deficit of $36.2B, more than double the nation’s deficit in 2019.1 This is not a surprise—Canada has posted a trade deficit most years even when not enduring a pandemic—but the nation’s trade activity will be especially scrutinized as economists look hopefully for signs of continued economic recovery. These signs are few and far between, however, as predictions of economic contraction, ocean freight rate volatility, and an appreciating Canadian dollar puts further pressure on trade.
In December, StatCan reported a narrowing of the trade gap from $3.6B to $1.7B, a trend driven by lower imports in consumer goods.1 Broken down, this change reflects an decrease in imports by -2.3% to a total of $49B, and an increase in exports by 1.5% to a total of $47.9B.1
Most notably, energy products drove exports upward, rising 10.2% to $7.5B in December. However, this value remained $670M below the pre-pandemic baseline of February 2020. Exports in crude oil saw the largest increase by 10.5%, totalling $5.3B in December. This figure is $1.9B lower than December 2019, a difference owed largely to a drop in prices. For context, StatCan notes, energy exports dropped by 36.5% in 2020, an annual decline similar to that of 2009.1
Imports of PPE continued to drop in December but remained 27.2% higher than 2019.1 Also in December, vaccines against the virus that causes COVID-19 saw their first wave of imports valued at $44.3B. Oddly, this import was 14.6% lower than that of December 2019. Note that these values are preliminary, and we should expect revisions with next month’s trade balance update.1
This trade balance update reflects on Statcan data pertaining to December 2020; reports are generally released 35 days following month end. With data now reported for the entirety of 2020, economists will be able to size up the true impact of COVID-19 on Canada’s trade activity.
Sea Freight Price Volatility Reaches Unprecedented Spread
The shipping industry has struggled through a series of lean years. Mergers fortified transport providers to an extent, but tight competition in the market kept margins slim. Now, in light of COVID-19 and its interruptions to global trade, shipping rates are seeing unprecedented volatility as providers grapple with entirely new landscapes of supply and demand.2
“While managing this volatility is difficult,” says William McKinnon, President of Canadian Alliance Terminals, “I think what we’re seeing is the rationalization of prices for the level of service shipping companies are providing. The margins have been so low for so long that in the irregularity created by COVID-19, companies were essentially forced into a much needed reappraisal of costs.”3
This volatility will likely continue into the new year and will surely continue to impact Canada’s trade activity. With spot prices ranging from $6,000 to $11,000 per container for transatlantic shipments at time of writing, those shipping from Asia to North America will have to respond strategically.2 “Prices are going to go up, I would suspect. Companies are going to need to rationalize to more consistent profitability, either through SKU reduction or inflation,” says McKinnon.3
StatCan Reports Trade Deficit, Maintains Surplus With USA
Statcan reported a trade deficit in December 2020 while maintaining a trade surplus with the United States, which widened from $2.2B to $2.8B.1 Even though Canada has experienced months of gains and an impressive recovery throughout 2020, trade activity remains below pre-pandemic levels and this seems unlikely to change in the first quarter of 2021.1 Canada has reported a trade deficit every year since 2014, the last observed surplus, with 2019 yielding the narrowest deficit in that timeframe.1 Strong export sectors including energy products as well as metal and non-metallic mineral products contributed to 2020’s final trade balance, driving final quarter increases by 9.9% and 14.4% respectively.1
Canada’s surplus with the US comes as the loonie continues to appreciate against the US dollar. Over the last four months, the loonie has gained over 4%, proving a force which should mediate the trade surplus as the US economy remains embattled by a troubled COVID recovery.4 The Bank of Canada doubled down on the strength of the loonie earlier this month in declining to alter its policy rates, projecting a moderate and sustainable increase in inflation returning to the 2 percent target by 2023.4 This appreciation, combined with sea freight volatility, may well level Canada’s surplus with the US.
“The appreciation of the dollar is another influential factor in Canada’s trade performance, and I’m interested to see how this trend will interact with other pressing issues, like this sea freight volatility, in the coming months,” says McKinnon. “We’re not out of the woods yet, however building optimism will continue to drive a positive recovery.”3