By Robb M. Stewart


OTTAWA--Canada unexpectedly swung sharply to a goods-trade deficit with the rest of the world in March after a slump in exports erased gains made the month before, led by a retreat in gold shipments and a slump in the automotive industry.

The country recorded its largest merchandise-trade deficit in nine months at 2.28 billion Canadian dollars, the equivalent of about $1.66 billion, Statistics Canada said Thursday. That was well short of the C$1.2 billion surplus expected by economists, and comes after February's surplus was revised down by $916 million to $476 million.

Merchandise exports sank 5.3% to C$62.56 billion in the latest month, taking back a similar-size increase the prior month, while imports sustained most of February's gains but still were down 1.2% to C$64.84 billion, the government agency said. For the quarter, imports were up 0.4%, but exports were 1.4% lower following two consecutive quarterly increases.

The weakening of exports suggests a headwind for industry-level gross domestic product, which Statistics Canada earlier this week forecast was essentially unchanged in March following month-over-month growth in January and February. Previously released estimates from the agency point to declines in both in factory trade and wholesale sales for the month.

Economists are looking for indicators supporting expectations the central bank will pivot to cutting interest rates as early as the next policy meeting in early June, given inflation was eased steadily in recent months and unemployment has inched higher. The Bank of Canada has forecast continued growth for the economy in 2024, and gross domestic product stalled in the second half of last year, though policy markets are looking for signs of a sustained trend lower in core inflation measures.

Overall, nine of the 11 product categories tracked by Statistics Canada saw weaker exports in March, and for a second straight month the pullback was led by unwrought gold. In volume-terms overall exports were down a slightly softer 4.7%.

"The softness in trade volumes suggest some downside risk to first quarter economic growth," Bank of Montreal economist Shelly Kaushik said.

Shipments of metal and non-metallic minerals were down sharply, but gold exports fell by a third from February after a number of high-value shipments to the U.K. and Switzerland weren't repeated.

Exports of energy products were down 4.9%, with a fifth fall in crude oil exports in six months that Statistics Canada said coincided with unplanned shutdowns at refineries in the U.S. Midwest as well as lower marine shipments of crude to the U.K.

After a rise in February, exports of motor vehicles and parts fell 6.3% with a drop in shipments of passenger cars and light trucks to the lowest level since December 2022 as several manufacturing plants began retooling work ahead of a shift to new vehicle models.

Exports to the U.S., Canada's biggest export market by a wide margin, were down by 5.0%, while imports were imports were 1.1% lower for the month. That narrowed Canada's surplus with its neighbor to C$6.48 billion from C$8.49 billion the month before.

Canada's trade deficit with countries other than the U.S. widened to roughly C$8.8 billion in March from $8 billion the month before, as exports fell 6.5% thanks larger and imports slipped 1.3%.

The overall fall in imports was broad, led by a pullback in imports of imports and electrical equipment and parts and a fall in metal ores and non-metallic minerals to the lowest level since September 2021. In volume terms, the country's imports from around the world were 1.2% lower.

When international trade in goods and international trade in services were combined, Canadian exports fell 4.6% and imports decreased 1.2%. As a result, Canada's trade deficit incorporating both goods and services widened to C$3.27 billion from C$431 million in the latest month.


Write to Robb M. Stewart at robb.stewart@wsj.com


(END) Dow Jones Newswires

05-02-24 0949ET