Canada’s Merchandise Trade Surplus Narrowed in September
Canada’s Merchandise Trade Surplus Narrowed in September
Canada’s merchandise trade surplus came in at C$4.5 billion in September, slightly smaller than forecasts for a $4.8 billion overrun. August’s surplus was revised to $5.6 billion from an initially estimated $5.8 billion. The narrowing in the September surplus reflected a modest 1% drop in exports while imports rose 1.9%.
The rise in imports was led by a 10.3% surge in the energy component, a partial reversal of the severe drop registered in August. This reflected a pickup in the volume of crude petroleum imports as prices declined in the month. A significant increase was also reported in the imports of passenger autos. Offsetting some of the strength in the energy and transportation components was a decline in imports of industrial goods and materials.
The decline in exports reflected a decline in prices as volumes were flat on the month. The weakness was concentrated in exports of energy products, automotive products and industrial goods. Exports of industrial goods fell 1.9% in the month with export prices for these products posting the first decline this year. The decline in auto-related exports conversely reflected lower volumes as prices continued to creep higher.
On a constant dollar basis, imports edged up 0.6% in the month while exports were flat. As a result, the net export deficit on a volumes basis in September widened marginally to $5.8 billion from $5.6 billion in August and followed the huge $7.6 billion deficit reported in July. Over the third quarter, the average deficit was higher than the average deficit in the second quarter meaning that net exports remained a significant drag on growth. The strong Canadian dollar and soft US growth saw constant dollar exports contract at a 4.4% annual rate while imports increased at a 1.1% annual rate. The recent weakening in the Canadian dollar should give some lift to exports although with the US economy in recession, the support in the near-term will likely be negligible. Data on the domestic economy has also taken a weaker tone in recent weeks with the details of the October labour report showing that private sector jobs slumped in the month and that the rise in public sector employment was due to the temporary hiring of 40,000 workers for the federal election. On balance, even though we are forecasting that a pop in real GDP (with a 1.5% annual rate increase expected) in the third quarter, the data is lining up for a mild contraction in the fourth quarter. In an attempt to try and limit the downward pressure on the economy, we expect the Bank of Canada to ease the overnight rate to 2.00% from the current 2.25% before the end of the year.
RBC Financial Group
http://www.rbc.com
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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