Fundamental Analysis

Canada's Trade Deficit Shrank to $1.5 Billion in October

Typography

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.

Author: RBC Financial GroupWebsite: http://www.rbc.com/
RBC Financial Group
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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