Canada posted a $1.17 billion trade deficit in October, up from a revised $0.89 billion deficit in September (previously reported as a $0.42 billion deficit). This is higher than consensus expectations of a $0.73 billion deficit. Exports fell 1.2% to $49.3 billion, driven primarily by energy. Imports declined by a less drastic 0.6% to reach $50.5 billion.

In real terms, the picture was significantly better. Exports volumes were up 1.2%, whereas import volumes were almost flat on the month.

The decline in exports was primarily an energy price story, which resulted in an overall slide of 2.3% in total export prices. As a result, exports of energy products fell 12.4% in value. This was only partially offset by strong upticks in exports of motor vehicles and parts (+4.4%) and food, fishing, and intermediate food products (+4.8%). Excluding energy, exports were up 1.6%, with increases across 7 of the 11 industries.

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Imports fell for the fourth consecutive month. This was led by a decline in motor vehicles and parts (-3.5%) and  industrial, chemical, plastics, and rubber products (-4.5%).

Canada’s merchandise trade surplus with the U.S. narrowed significantly to $3.1 billion in October. Its merchandise trade deficit with countries other than the U.S. narrowed to $4.2 billion.

Key Implications

The release is much better than the headline picture indicates. As expected, the widening was mostly driven by reduced energy prices, due both to elevated Canadian differentials for most of the fall, and declining global benchmarks. The uptick in export volumes, which was relatively broad-based, is encouraging, whereas the flat import volumes don’t raise as large a red flag on consumer spending as the nominal headline value would suggest.

Despite the good release, it likely doesn’t change much in the face of larger headwinds that are approaching. Developments in the last month, including a weaker-than-expected Q3 real GDP, oil production curtailments in Alberta, and the GM plant shutdown have further added credence to a slowing growth narrative. In particular, announced voluntary oil shut-ins in Q4, combined with mandatory curtailments in 2019 are expected to weigh on export volumes going forward.

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