Canada's trade deficit widens in October

Canada's trade deficit widened to $2.8B in October, from a revised $2.3B in September (previously reported as $1.7B).  Exports fell by 1.8%, while imports were down by a more modest 0.8%.  In real terms, the declines were slightly smaller, with export volumes slipping 1.5%, and import volumes falling 0.2%.

The decline in exports was widespread, led by a 9% drop in metal ores and non-metallic minerals, resulting largely from lower copper ores and concentrate exports.  A significant drop in canola exports drove farm, fishing and intermediate food products down 7% during the month.  Industrial machinery (+1.1%) was the only sector to record an increase in exports in October.  Exports of energy products were flat in during the month, and excluding energy, exports slid by 2.1%.

Imports of energy products, however, sank 6.8% during the month, although it was largely a price story, with volumes up 2.2%.  A 9% drop in crude oil imports marked the lowest value in 12 years.  Consumer goods imports (-3.3%), electronic and electrical equipment imports (-3.1%) and industrial machinery imports (-2.9%) were also down in October.

The pullback in exports to the U.S. (-2.8%) accounted for the bulk of the drop, with a minor decline imports (-0.3%) narrowing Canada's trade surplus with its largest trading partner.  Excluding the U.S., exports were up 1.2%, driven by a 39% increase in goods sent to the United Kingdom.  Accordingly, Canada's deficit with the rest of the world narrowed in October.

Today's report provides an early glimpse of the state of the Canadian economy in the fourth quarter.  Following September's real GDP report, Canada's trade balance is just one more indicator that suggests the economy is losing momentum.  That said, September provided a strong handoff for trade, and we do expect exports to bounce back in the final months of the year, helping to lift overall growth.  Indeed, several supportive factors - including a weak loonie, and healthy U.S. economy - remain in place to stimulate non-energy export demand.

The Bank of Canada has been looking for the export sector to be a key driver of economic growth.  Despite today's weak report, there is still a great deal of potential for exports to fulfil that role.  With growth in the fourth quarter likely to come in below the central bank's latest forecast.

"We continue to expect the current accommodative level of stimulus to be maintained for some time", says TD Economics.