Source: The Canadian Press

Canada’s trade deficit climbed to half a billion dollars in May as businesses imported more machinery and industrial goods and the Canadian economy continued to grow robustly, boosting demand for foreign products.

Statistics Canada said Tuesday the overall trade deficit rose to $503 million from $330 million in April, making May the third consecutive month with a deficit.

A large trade surplus with the United States, Canada’s largest trading partner, was more than offset by a widening deficit with other countries.

While exports rose, so did imports, especially machinery and equipment, industrial goods and material. That suggests Canadian manufacturers and other companies are importing more and more technology from the U,S, and abroad to boost future output.

As well, the robust growth in the Canadian economy and recovery of the auto industry is leading to a solid rebound in demand in imports of everything from auto parts for Canadian car assembly plants to carpets for new homes and manufactured goods and clothing for Canadian consumer use.

“A deterioration in a trade balance does represent a drag on overall GDP growth though in this particular case it reflects an encouraging jump in exports being offset by an even greater surge in imports with domestic demand remaining robust,” said RBC assistant chief economist Paul Ferley.

Analysts have noted that the rising value of the Canadian dollar in recent times has made it cheaper for Canadian companies to import computers, assembly line machines and other equipment used to boost output and improve productivity on the factory floor.

In its report, Statistics Canada said exports rose to $34.5 billion from $32.8 billion in April after two months of decline. More than half the export growth came from the auto sector.

Merchandise exports rose 5.2% in May, led by higher volumes of automotive products, while imports increased 5.7%.

Exports to the United States increased 5.5% while imports grew 5.8 as Canada’s trade surplus with the United States widened to $3.6 billion in May from $3.5 billion in April.

Export volumes increased 3.9% and prices rose 1.2%.

Imports rose to $35 billion from $33.1 billion in April, as all import sectors, except agricultural and fishing products, grew in May.

Machinery and equipment, industrial goods and materials as well as other consumer goods led the gain in imports.

Import volumes increased 4.2% while prices grew 1.4.

“Overall, this was a somewhat mixed report as the favourable impression given by the improving trade flows picture for Canada is somewhat offset by the fact that the trade balance remained drenched in red,” wrote TD Bank economist Millan Mulraine in a note.

“Nevertheless, with much of the gains in imports in May being accounted for by machinery and equipment purchases, it is possible that trade could indirectly add favourably to GDP (via increased investment spending) at least for this month.”

As a result, Canada’s trade deficit with countries other than the United States expanded to $4.1 billion in May from $3.8 billion in April.

Exports to countries other than the United States grew 4.4%, led by a 25.2% increase in exports to the European Union. Imports rose 5.5%.