Canada’s trade deficit narrowed to $1.5B in October, from $3.4B in September. Exports rose 2.7% while imports slid 1.6%. In real terms, exports were up 1.2%, while imports fell by a hefty 3.9%.
The strength in exports was widespread, with all but two industries – aircraft and other transportation equipment (-7.7%) and metal ores and non-metallic minerals (-5%) – recording gains. Leading the way was chemical, plastic and rubber products (+12%), followed by farm, fishing and intermediate food products (+7.7%).
The decline in imports was also fairly broad based, with metal ores and non-metallic minerals (-20%) and motor vehicles and parts (-8%) recording the largest declines. The latter was driven by reduced parts imports in light of the strike at an auto assembly plant. Aircraft and other transportation equipment (+16%) provided some offset.
Canada’s trade surplus with the U.S. widened to $3.5B during the month (previously $2.0B), as exports rose 4% while imports were down 0.6%. Canada’s trade deficit with the rest of the world narrowed to $5.0B in October (previously $5.4B), as the decline in imports (-3.3%) outpaced the decline in exports (-1.4%).
Key Implications
Following four consecutive months of declines, export volumes bounced back, fully erasing the drop recorded in August and September. This provides a stronger handoff for the fourth quarter, which should see a notable step up in fourth quarter growth relative to Q3’s 1.7% pace.
Looking ahead, exports should manage to gain some traction, supported by a healthy U.S. economy and a Canadian dollar hovering around the 80 US cent mark. Moreover, the strike at an auto assembly plant that weighed on exports through the first half of the month should lead to higher motor vehicle exports going forward. Of course the NAFTA renegotiations remain a wildcard, but given the slow progress to date, any changes are unlikely to take effect within the next year.
This report, combined with last week’s stellar employment report, will be looked favorably upon by the data dependent Bank of Canada. With most other areas of the economy evolving as expected by the Bank, higher interest rates are not far off.
