- Canada’s merchandise trade deficit narrowed to $2.4 billion in August, following a $2.5 billion deficit in July. Declines were recorded on both sides of the ledger, with exports dropping 1% (m/m) and imports dropping 1.2%. Nominal exports and imports are now down 7% and 5.1%, respectively, from their pre-pandemic (February) levels.
- The picture was more disappointing after stripping out price impacts. Export volumes were down 1.4% while import volumes were down a more modest 0.5%.
- The decline in exports spanned 6 of the 11 major sectors. As expected, the overall decline was largely driven by exports of motor vehicles and parts (-6.8% m/m). Exports of aircraft and other transportation equipment were also down (-14.5%). Providing some offset were surging forestry products and packaging materials exports (+7.6%). Tightness in lumber markets amid rising North American housing demand lifted prices to record levels, supporting increases in nominal sales.
- Likewise, imports were also down in 6 of the 11 sectors. The headline decline was largely driven by lower imports of aircraft and other transportation equipment (-25.3%). Weaknesses were also seen in imports of metals and non-metallic products (-5.7%) and industrial machinery and equipment (-4.4%).
- Canada’s merchandise trade surplus with the United States widened to $3.3 billion in August (from $2.5 billion in July). Its merchandise trade deficit with the rest of the world widened to $5.8 billion (from $5 billion in July).
- Statistics Canada also released its monthly trade in services report for August, which showed only a modest increase in services exports (+0.9%) and imports (+1.3%). Exports and imports of services remain 21.4% and 32% below their February levels, respectively. Lingering weaknesses are primarily driven by dampened international travel.
Key Implications
- An outright decline in Canada’s total exports in August is disappointing, but the giveback in motor vehicle exports following July’s unsustainable spike was largely expected. Stripping away monthly noise, the release is consistent with our view that as the economy enters the “recuperation” stage, activity will moderate. The reversal in export gains speaks to the still-highly-uncertain backdrop surrounding exports and business investment.
- Looking ahead, we continue to receive mixed signals on the outlook for exports in the near-term. Strong manufacturing sentiment readings in Canada, the U.S., and China in September point to continued growth in trade. At the same time, services exports are expected to remain far below their pre-pandemic levels until a vaccine/treatment become widely available.
