Canada’s merchandise trade deficit widened to the second-largest on record in May, more evidence that weakness that started with an oil shock has extended beyond the first quarter.
The deficit widened to C$3.34 billion ($2.63 billion) from C$2.99 billion in April and was second only to the record C$3.57 billion shortfall in March, Statistics Canada said Tuesday in Ottawa. Exports fell for a fifth month.
The report adds to pressure on Bank of Canada Governor Stephen Poloz to cut interest rates next week for the second time this year, as an expected rebound in non-energy exports fails to materialize. The trade data and a jobs report later this week are the last major indicators before the central bank’s July 15 rate decision.
“The trade data were the first major indicator for May activity, and it ain’t lookin’ good,” Avery Shenfeld, chief economist at CIBC World Markets in Toronto, said in a research note. “That’s one more chip on the side of our forecast for a rate cut by the Bank of Canada next week.”
On Monday, Toronto-Dominion Bank Senior Economist Randall Bartlett said in a research note Canada probably fell into recession in the first half, due to the drop in oil prices. He also predicted Poloz will cut rates next week.
Canada’s dollar remained lower after the report, and was down 0.7 percent to C$1.2741 per U.S. dollar at 8:40 a.m. Toronto time.
Exports fell by 0.6 percent to C$42 billion in May, and they declined 6.7 percent from the same month a year earlier. Metal ore and non-metallic mineral shipments fell 9.2 percent to C$1.44 billion in May and exports of industrial machinery, equipment and parts declined 3.5 percent to C$2.56 billion. Forestry product exports fell 3.2 percent to C$3.07 billion.
May’s overall trade deficit exceeded the median estimate of C$2.55 billion in a Bloomberg News economist survey with 18 responses.
Falling crude oil prices earlier this year led to canceled investments and layoffs in Alberta and four straight contractions in national gross domestic product. Energy exports rose 1.3 percent to C$7.66 billion in May as oil prices stabilized, leaving them down 33.8 percent over the past 12 months.
Imports rose 0.2 percent to C$45.3 billion, including a 2.3 percent gain in consumer goods to C$9.72 billion, Statistics Canada said.
Canada has posted trade deficits every month this year, and the cumulative 2015 total of C$13.6 billion is a record, exceeding the next highest, in 2009, of C$2.95 billion.
The volume of exports plunged 2.5 percent in May while import volumes rose 0.3 percent, Statistics Canada said. Volume figures adjust for price changes and can be a better indicator of how trade contributes to economic growth.
Poloz has said the shock of last year’s plunge in crude oil prices is “front loaded” and gains in other parts of the economy will take over in the second half of this year. On June 28 the central bank governor compared his January interest-rate cut to surgery made necessary by plunging oil prices.