After two months of growth, Canadian exports fell in August, leading to a widening of the country’s trade deficit to $2.5 billion, up from $817 million in July, Statistics Canada announced October 6.
While imports increased 0.2%, exports fell 3.6% to just under $44 billion, and leading the way was a 14.7% drop in energy exports. This decrease was directly related to falling prices as energy export volumes actually increased 2%.
“Exports staged a nice comeback from a tough Q1, but trade took a step back in August,” said CIBC Economics’ Nick Exarhos.
“The $2.5 billion deficit was over a billion deeper into the red than we or the street were expecting.”
Overall export prices were down 3.0% while volumes dipped 0.6%.
“Most of the nominal decline was driven by soft energy prices, with WCS [Western Canadian Select crude oil] prices hitting their lows in August,” Exarhos said.
Excluding energy, exports were down 1.5%. Consumer goods exports fell 8%; a 3.1% increase in motor vehicle and parts exports partially offset this.
August was the fourth month in a row with increasing imports. The growth was led by consumer goods imports, up 2.6%, and metal and non-metallic mineral product imports (up 6%).
Electronic and electrical equipment imports fell 7.9% during the month, and aircraft and other transportation imports were down 14.4%.
Canada’s trade surplus with the United States shrank slightly in August. Exports fell 3% while imports fell only 0.8%. Excluding exports to the U.S., overall exports were down 5.5%, driven by a 32.5% plunge in exports to the United Kingdom.
Dina Ignjatovic, economist at TD Economics, said despite the increase in Canada’s international trade deficit, the near future still looks bright.
“Given the strength in exports recorded during the previous two months, the Canadian economy is still tracking growth of around 2.5% for the third quarter – above the Bank of Canada’s latest forecast of 1.5% published in July,” she said.
“Moreover, with U.S. domestic demand still going strong and the Canadian dollar hovering around the 75 U.S. cent mark – with more weakness likely in store – the rotation toward export growth will continue.”
Ignjatovic said the Trans-Pacific Partnership agreement, signed yesterday, will eventually lead to lower tariffs and increased markets for Canadian goods and services. These benefits will take time to be realized, however, as the agreement has yet to be ratified.
As of press time, the Canadian dollar was trading at 76.64 cents U.S. – up about half a cent.
