Canada’s trade deficit widened to $2.5 billion in November (previously $1.6 billion) as the 5.8% rise in imports outpaced the 3.7% gain in exports. In real terms, the picture was worse, with import volumes up 5.0% and export volumes rising 0.6%.
The rise in imports was widespread, with nearly all industries reporting gains. Leading the way was metal ores and non-metallic minerals (+28%), aircraft and other transportation equipment and parts (+19%) and electronic and electrical equipment and parts (+11%). The only industry in which imports declined during the month was energy products (-3.6%).
Export gains were also fairly broad based, led by a rebound in motor vehicle and parts (+15%) which had fallen in the previous four months. Consumer goods (+7%) also had a strong showing in November, rising to the highest level seen in nearly a year. However, in volume terms, exports excluding autos were soft, falling 1.4%.
Canada’s trade surplus with the U.S. slid to $3.3 billion in November (previously $3.5 billion), as the rise in exports (+5.4%) trailed that of imports (+6.5%). Canada’s trade deficit with the rest of the world widened to $5.9 billion (previously $5.0 billion) as imports were up 4.4% and exports were down 1.4%.
Key Implications
This was a disappointing report, but unlikely the start of a trend. The strength in imports is suggestive of a return to normality in previously disrupted sectors such as autos. Still, the outperformance of imports versus exports means that net trade will act as a drag on growth during the month, and the decline in export volumes ex-autos is not very encouraging.
Going forward, the outlook for Canada’s trade picture remains bright. A healthy US economy and a loonie sitting at around the 80 US cent level should keep demand for Canadian exports propped up, helping net trade support overall growth in the coming months. The biggest risk facing exporters is the ongoing NAFTA renegotiations, which have yet to make much progress.
The Bank of Canada may be disappointed in this report, but it is more than offset by this morning’s spectacular employment report, which points to a labour market with little slack. As such, after this morning’s releases, the Bank will be inclined to move interest rates higher sooner rather than later.
