Canada's global merchandise trade deficit fell by 53% in September due to increased exports to the European Union, Statistics Canada reported Friday.
Canada's trade deficit fell to $927 million from $2 billion in August due to a $1 billion increase in exports and a slightly decrease in imports. Exports to countries other than the U.S. contributed to the bulk of the increase with a 34.1% increase in exports to the EU to $2.96 billion from $2.2 billion in August.
Exports to the U.S. rose 0.5% in September, however were offset by a 1.7% increase in imports, leading to an 8.6% decline in Canada's trade surplus to the U.S. to $2.1 billion from $2.3 billion.
Overall, a 15.8% increase in automotive product exports and a 6.3% increase in the exports of industrial goods and materials contributed to Canada's increased export levels in September.
Exports of passenger automobiles rose 18.4% as new models were introduced and some manufacturers resumed production after summer shutdowns. Exports of motor vehicle parts rose 8.6% reflecting increased vehicle production in the U.S. to replenish inventories depleted during the summer 'cash for clunker' sales campaign. Exports of trucks and other motor vehicles also rose following a decline in August.
September's trade results were better than analysts expected, although net exports still provide a major drag on economic growth in the third quarter, according to an RBC Economics report released Friday.
The risks for further economic declines has lessened, however, for overall third quarter GDP growth, there will need to be strengthening of the domestic Canadian economy. Reports of Canada's manufacturing and wholesale trade figures will be watched closely for indications of strengthening sales or inventory accumulation in these sectors.
The RBC report expects the economy will likely grow by an annualized rate of 1% in the third quarter.
While third quarter growth will be an improvement from a 3.4% decline in the second quarter and a 6.1% decline in the first quarter, the slow rate of growth will not prevent unemployment from continuing its rise.
The report suggested slow growth will be one reason for the Bank of Canada to keep its overnight rate at 0.25% until at least the end of the second quarter of 2010.