Canada’s trade surplus roared to $5.9 billion in March, trumping economists’ expectations. But, they warn, the good news isn’t likely to continue.

The surplus marked a big jump from an upwardly revised $4.8 billion reading in the prior month. The monthly surplus was the highest in almost two years, and was largely an energy story, says BMO Nesbitt Burns. “While oil prices tumbled in the middle of the month, the average price for all of March was still quite lofty, and natural gas prices remained at sky-high levels through the month. Excluding energy, exports nudged up a mere 0.1% from the prior month, held back by a decline in auto shipments.”

Nesbitt says that energy exports soared 14.9% in March, lifting the trade surplus on energy products to $5.4 billion. Weakness in industrial goods, materials, and auto products led the way down.

“With U.S. economic activity still suspect and energy prices moderating, the likelihood of similar gains in the trade balance in the near-term is unlikely,” cautions RBC Financial. “Fears that the Canadian dollar and weakness in the U.S. economy will hurt exports will not be dashed by this report. Nevertheless, the trade data released today does suggest that any deterioration in the trade balance going forward will come from lofty levels and is unlikely to lead to a current account deficit.”

TD Economics also warns, “Don’t be duped by this morning’s merchandise trade headlines — the burst in Canada’s export performance in March was fuelled by energy and not much else. While it would be comforting to assume that Canada’s export sector somehow managed to dodge the ongoing economic quagmire south of the border, a closer inspection of the data reveals otherwise.”

“Looking ahead, Canada’s export sector will continue to languish until the U.S. economy starts to gain traction in the second half of the year. Moreover, the energy sector will not be providing much of a kick in April – both oil and natural gas prices slipped during the month, and the jump in volumes in March may reflect the building of stockpiles in advance of the war in Iraq,” TD concludes.

BMO says, “The combination of lower oil prices, a stronger Canadian dollar, and slower U.S. auto sales points to a pullback in Canada’s trade surplus in the months ahead. Indeed, ex-energy trade is now just barely in a surplus position, and exports fell in volume terms in the first quarter of the year — before the soaring Canadian dollar began to bite. However, the starting point for the projected decline in the trade surplus is quite healthy, providing underlying support for the loonie.”

“Although March’s export performance was considerably stronger than expected, trade flows remain a hurdle for Canadian growth,” offers CIBC World Markets. “The combination of a quarterly real export decline and real import advance led to a roughly $8 billion annualized erosion in the goods balance, equivalent to a 3% drag on Q1 annualized growth. Still, monthly GDP results revealed notable growth in both January and February, hinting at growth of between 2.5% to 3% in the first quarter.”