Canada posted a $2.1bn trade deficit in November, down from an upward revised $0.85bn deficit in October (previously reported as a $1.2 billion deficit). This is a slightly bigger deficit than the consensus estimate of $1.95bn. The trade deficit was driven by a 2.9% (month-on-month) drop in exports, mainly on crude oil exports, while imports fell 0.5%.
Changes in volumes were similar. Exports volumes declined 1.8% while prices fell 1.1%. Import volumes fell 0.3% while prices fell 0.1%.
Crude oil exports were down 17.7% in November, driven lower by a third consecutive monthly decline in prices (-13.9% in the month). The volume of crude exports were down 4.4% as Canada exported less oil to the U.S. Other export products also declined in the month, including a 7.5% drop in chemical, plastic, and rubber products, and a 5.7% drop in forestry products, including building and packaging materials. Non-energy exports declined 1.4%.
A 2.8% decline in the import of motor vehicle and parts helped to drive overall imports lower in November. Lower imports of vehicles was the main culprit, and this import category has declined in 9 of the past 12 months, coinciding with the slowdown in auto sales. Metals and non-metallic imports also declined significantly in the month (-18.6%), likely due to a reversal of recent strength. Higher imports of aircraft and other transportation equipment helped to largely, but not fully, offset declines in imports. Aircraft imports continued to recover from their third quarter slump in November.
Canada’s merchandise trade surplus with the U.S. narrowed to $2.2bn in November from $3.5bn in the previous month. Its merchandise trade deficit with countries other than the U.S. narrowed to $4.2 billion from $4.4bn in October.
Key Implications
As expected, weaker domestic energy prices, culminating in production cuts, helped drive down crude oil exports in November. The decline in non-energy exports don’t appear to be a cause for concern as they likely just reflect typical monthly volatility.
Oil production curtailments in Alberta, the GM plant shutdown, and slower real wage growth are indications that Canadian economic activity slowed at the end of 2018. Moreover, headwinds from mandatory oil production curtailments in early 2019 and slowing growth in foreign demand are factors that are likely to continue to weigh on Canadian exports and economic growth in the months ahead.
