Canada's trade deficit for May remains near record levels

Canada's trade deficit plunged to a record in April and stayed near that level in May, Statistics Canada said Wednesday, raising concerns that economic weakness in the second quarter could be worse than initially feared.

The federal agency said the trade deficit in May was $3.28 billion as exports of crude oil and bitumen grew despite the wildfires in Fort McMurray, Alta., that forced several oilsands operations to shut down production. By some estimates, more than one million barrels per day of crude production was knocked offline about 40 per cent of all Canadian oilsands output.

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Economists had expected a trade deficit of $2.7 billion for the month, according to Thomson Reuters.

Based on preliminary evidence, Statistics Canada said refinery activity slowed in May, freeing up oil for export, and the remaining shortfall in crude production was largely offset by a reduction in Alberta oil inventories.

The trade figures offer the first glimpse of how the economy weathered the Alberta wildfires, which forced the evacuation of the city of 80,000.

Exports of crude oil and bitumen were up 10.5 per cent at $3.8 billion, as prices were up 9.9 per cent and volumes rose 0.6 per cent.

Overall, exports fell 0.7 per cent to $41.1 billion in May, while exports excluding energy products declined 1.8 per cent. Imports slipped 0.8 per cent to $44.4 billion.

April record gap

The result from April was also revised to show a historic trade deficit of $3.32 billion compared with an initial estimate of a $2.94 billion deficit.

Bank of Montreal senior economist Benjamin Reitzes called the trade report "very downbeat."

"The string of declines in export volumes is a worrying sign that the transition away from energy sector-driven growth might be stalling," Reitzes wrote in a report.

"Add on the uncertainty surrounding the global economic outlook following the Brexit vote and Canadian trade will likely have trouble gaining meaningful traction in the near term."

TD economistDina Ignjatovic said in a commentary that the outlook is brighter for later in the year.

"Exports are poised to pick up in the second half of this year, as disruptions from the wildfires abate and underlying fundamentals namely solid U.S. demand and a loonie hovering in the mid-to-high 70 US cent range remain supportive," Ignjatovic said. "As such, exports are expected to become a key source of strength in the Canadian economy once again."