Highlights:
- Canada’s nominal merchandise trade deficit held steady at an elevated $3.2 billion in September.
- Energy exports rose 4.6% but that was offset by a fourth consecutive monthly drop in non-energy shipments.
- Import growth has also softened but – unlike exports – not enough to retrace earlier strength.
- We continue to expect GDP growth in Canada slowed in Q3 from the outsized pace of growth over the past year but still look for slightly ‘above-potential’
Our Take:
Non-energy export volumes declined for a fourth consecutive month with the cumulative drop more than reversing what had been an encouraging increase over the prior three months. Energy shipments provided some offset, rising 4.6% in volume terms. Part of the recent non-energy export weakness has been related to production disruptions in the auto and chemical sectors over the summer. We continue to expect modest growth in exports going forward as global trade flows improve and demand from the U.S. industrial sector strengthens. Nonetheless, it is clearly difficult to argue that there has been much of an acceleration in external demand year to-date in 2017 with annual export growth not tracking significantly different than the 1.0% increase last year.
On the other hand, domestic demand still looks relatively solid. Goods import volumes inched 0.9% lower in Q3 (at an annualized rate) but that retraced little of an 11.2% surge in Q2. Another quarterly increase in equipment imports – notwithstanding softer readings in August and September – mean business investment probably rose again in Q3. Separately released labour market data for October this morning suggests that Canadian businesses are continuing to hire. Clearly growth in the economy has slowed from the outsized – and unsustainable – 3.7% rate mid-2016 to mid-2017. We, nonetheless, still expect overall GDP increased 1.7% in Q3 and look for growth to be sustained at a slightly ‘above-potential’ 2% rate going forward.
