Canada’s trade deficit was unchanged at $3.2 billion in September as both imports and exports were down 0.3%. In real terms, export and import volumes both edged down 0.2%.
The decline in exports was driven largely by motor vehicles and parts, with a strike that began mid-month contributing to a 16% drop in exports of passenger cars and light trucks. Most other industries recorded gains during the month, led by energy exports which were up 7.2% during the month.
The drop in imports was fairly widespread, however an 18.5% surge in energy product imports and a 7% increase in metal ores and non-metallic minerals provided some offset.
Canada’s trade surplus with the U.S. narrowed to $2.2B in September (preciously $2.7B), as exports were down 1.2% and imports rose 0.4%. Canada’s trade deficit with the rest of the world narrowed to $5.3 billion (previously $5.8B), with exports up 2.4% and imports down by 1.4%.
Key Implications
September marks the fourth consecutive month in which export volumes declined. For the quarter as a whole, they were down 3.8%. With imports falling by a slight 0.2% over the same period, net trade will weigh on overall growth in Q3 – which is now tracking under 2% – and provides a weak hand off for the fourth quarter.
Going forward, conditions should remain supportive for exports to resume growth, with a solid U.S. economy likely to keep demand for Canadian-made goods healthy and a Canadian dollar that has fallen back to around 78 US cents. However, the strike at an auto assembly plant that lasted into mid-October will limit output and thus exports during the month.
With the Bank of Canada’s next move heavily data dependent, the soft export performance does not support a move higher. However, several data reports will be released between now and the Bank’s next meeting in December. At this point, we don’t expect the Bank to hike until early next year.
