"With key manufacturing plants back in action in May, Canada's export sector rebounded as expected. Decent strength in imports of capital goods in the second quarter is also a positive sign for business investment, which TD Economics expects will rebound after a decline in the first quarter"
- Leslie Preston, TD Economist
Canadian exports to foreign markets rose more-than-expected in May, narrowing the country's trade deficit and setting the economy on a more sustainable growth path. Canada's export surged 3.5% to the second highest level since the records began at a seasonally adjusted C$152 million from C$961 million in April, exceeded only in July 2008, when volumes were up by 4.2%. Meanwhile, imports also increased 1.6% in May, bringing Canada's trade deficit to C$152 million down from C$961 million recorded in April. The trade balance ran four months of deficit from October 2013, then came back to surplus in February and March before returning into deficit in April. With the housing market and construction activity slowing, the Bank of Canada has been heavily relying on an export recovery to boost business confidence and convince companies they should invest in new equipment and machinery to increase production capacity.
Separately, the U.S., Canada's neighbour and the main trading partner, posted better-than-expected data on employment and trade balance suggesting that positive developments on both sides of the border are supportive for sustainable growth in the countries. Markets were pleased by a slew of upbeat economic data, lifting the Canadian Dollar to slightly above 94 U.S. cents, one of the highest levels in several months.
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