December 5, 2017 - Canada’s trade deficit with the rest of the world shrank significantly in October, as exports rebounded after four straight months of declines. Meanwhile, imports fell to their lowest level in nearly a year.
The report marks a reprieve for Canadian exporters, after sales abroad fell steeply in the third quarter due largely to disruptions at automobile factories. The Bank of Canada is counting on an improved export environment to help drive growth, and offset expected weakness in real estate and household spending.
Canada’s merchandise trade deficit in October narrowed from the previous month to a seasonally adjusted 1.47 billion Canadian dollars ($1.16 billion), Statistics Canada said Tuesday. The previous month’s trade deficit was revised to C$3.36 billion from the earlier estimate of C$3.18 billion. Market expectations were for a trade deficit of C$2.70 billion, according to economists at Royal Bank of Canada.
Exports climbed 2.7% in October to C$44.46 billion on broad-based gains, whereas imports fell 1.6% mostly due to weaker demand for passenger cars and light trucks. In volume, or price-adjusted, terms, exports rose 1.2% while imports decreased 3.9%, or the sharpest decline in a year.
“This report, combined with last week’s stellar employment report, will be looked favorably upon by the data dependent Bank of Canada,” said Dina Ignjatovic, economist at TD Bank. Canada’s labor-force survey said the economy added a whopping 79,500 jobs in November, and the unemployment rate fell to a near-record low of 5.9%.
“With most other areas of the economy evolving as expected by the central bank, higher interest rates are not far off,” Ms. Ignjatovic added.
Statistics Canada noted the Canadian dollar lost 2.1 U.S. cents on average relative to the U.S. dollar from September to October. The Canadian currency lost ground after the Bank of Canada expressed caution over the impact two rate increases might have on indebted households. A weaker Canadian currency means Canadian-made goods become cheaper abroad.
Before the October report, exports declined for four straight months. Data covering the third quarter indicate exports fell by nearly 8% on a nonannualized basis.
In October, there were widespread gains among export categories, led by industrial products like plastic and rubber, up 12.4%; agrifood products, such as canola seed and canola oil, up 7.7%; and mineral products, such as refined gold, up 4.5%. Canada’s top export category, energy products, climbed 2.7% to C$7.61 billion, and while No. 2 on the list, motor vehicles and parts, advanced 1.2% to C$6.69 billion.
On a geographic basis, exports surged 4.1% to the U.S., which happens to be Canada’s largest trading partner. Three-quarters of all Canadian exports head south to the American market. Excluding sales to the U.S., exports fell 1.4% to C$11.14 billion.
Talks toward a revamp of the North American Free Trade Agreement have hit a stalemate, with Canada’s chief trade negotiator telling lawmakers Monday some of the Trump administration’s proposals are “wholly unworkable.” The uncertainty around Nafta, and President Donald Trump’s threat to withdraw from the pact, is one reason Bank of Canada officials have adopted a cautious approach to rate policy after two increases earlier this year.
Offsetting the bounce in exports was a steep drop in imports, or what Canadian purchase from abroad. The data agency attributed half of the import drop to fewer shipments into Canada of motor vehicles and parts. That category fell 8.1% to C$8.71 billion.
Source: The Wall Street Journal