Highlights:
- Canada’s nominal merchandise trade deficit narrowed to $1.5 billion in October from $3.4 billion in September.
- Export volumes rose 1.1%, entirely reflecting an increase in non-energy exports. Energy export volumes declined 0.5%.
- Import volumes declined by a pronounced 3.2% but are still up 3% from a year ago.
Our Take:
The October deficit was down sharply from $3.4 billion in September – and the average $3.0 billion monthly shortfall in Q3. Export volumes rose 1.1% after falling for four straight months. Shipments of industrial chemicals surged 13.2% higher, as US petroleum refineries boosted demand. Gains were also relatively broadly-based outside of that component, though. Non-energy exports increased about 1 1/2% in October in volume terms but were still down by about half a percent from a year ago.
Imports were less encouraging, falling 1.6% in nominal terms and 3.2% in volumes. The decline is, of course, a positive for the net trade balance but could, if sustained, also be a sign of slower domestic demand growth. A pullback in machinery and equipment imports – a key indicator of business investment – in particular took some of the shine off the improvement in the trade deficit in October. Nonetheless, the data is notoriously volatile so one monthly decline doesn’t make a trend. Imports are still up 3.0% from a year ago and industrial machinery imports are up a stronger 13.5% year-over-year. On balance, there is more to like than dislike in today’s report. We don’t expect that the Canadian economy will return to the outsized 3 1/2% pace of growth from mid-2016 to mid-2017 any time soon but data to-date is still consistent with underlying growth at a modestly above-potential 2% rate – similar to the 1.7% increase in Q3/17 GDP.
