Businessman climbing towards growth in statistics

Statistics Canada says the country posted a merchandise trade surplus in March of $972 million as imports fell more than exports. While the surplus should prove positive for first-quarter growth, the effects of interest rate hikes are expected to continue to weigh on the economy.

The agency says the surplus compared with a revised deficit of $487 million in February. The initial reading for February released last month had indicated a surplus of $422 million.

The reading for March came as total imports for the month fell 2.9% to $62.6 billion, the lowest level observed since March 2022.

Imports of consumer goods fell 11.0%, mainly because imports of pharmaceutical products dropped 31.8%. Imports of electronic and electrical equipment and parts lost 5.2%.

Meanwhile, total exports fell 0.7% to $63.6 billion, the lowest level since February 2022. Exports of energy products dropped 5.9% in the month, mainly because of lower exports of crude oil as both prices and volumes were lower in March.

In volume terms, overall imports were down 5.3% in March, while exports edged up 0.1%.

With export volumes outpacing imports in the first quarter, net trade should make a positive contribution to Q1 economic growth, Marc Ercolao, TD economist, said in commentary on Thursday.

The surplus trade result “continues to bolster the narrative that growth this quarter will rebound strongly after flatlining in the final quarter of 2022,” Ercolao wrote.

Still, he expects economic momentum to slow as interest rate increases work their way through the economy. In particular, “import volumes have contracted in four of the last five months and are at their lowest level since exactly one year ago, signalling a slowdown in domestic demand,” the commentary said.

Further, “export volumes have held up relatively well given stronger-than-expected growth from Canada’s major trading partners.”

Gross domestic product data for the first quarter will be released May 31.