08:26 AM EDT, 07/04/2024 (MT Newswires) -- Canada's merchandise trade balance moved deeper than expected into deficit territory in May, coming at a deficit of C$1.9 billion on Wednesday against the consensus of a C$1.3 billion deficit, noted Rosenberg Research.

April was revised wider, too -- from a C$ 1.1 billion deficit initially to a C$1.3 billion deficit in Wednesday's release. With two months of data now in hand for Q2, international trade looks set to drag on gross domestic product (GDP) growth to the tune of -1.4 percentage points, and it appears increasingly likely that growth will cool "substantially" from the +1.7% pace posted in Q1.

The exports side of the account fell by 2.6% m/m, more than wiping out the +2.1% gain in April. At C$62.4 billion, that's the lowest level since last July, and this went beyond price fluctuations -- in volume terms, exports fell by 1.7%.

Continuing the trend established in recent months, high volatility in gold exports was a major factor behind the reversal (unwrought precious metals down 17.1% MoM). Another contributor was the energy sector, where exports fell 2.4% on lower oil prices. But export softness was broad, with eight of the 11 product categories down

on the month.

Imports were down too, though not enough to offset the fall in exports. Auto imports fell 4.4% in May, wiping out half of the cumulative gains since February. As in the export accounts, precious

metals and energy were also large negative contributors.

Meanwhile, in a poor reflection of the state of the Canadian household, consumer goods imports tanked by 2.8% m/m, the largest fall-off since January -- this category has only risen in one month this year, pointed out Rosenberg Research.

Meanwhile, the services trade deficit narrowed marginally to C$1.0 billion in May from C$1.1 billion in April -- not nearly enough to undo the damage (from a growth perspective) on the goods side of the accounts, with the combined deficit widening by more than C$0.5 billion to C$2.9 billion.