Canadian trade deficit widens in August

Canada's trade deficit widened to $2.5 billion in August, from $817 million during the month prior.  Exports slid 3.6%, while imports inched up by 0.2%. In real terms, the picture was a little better, with export volumes down by a more modest 0.3% and import volumes down 0.1%.

Canada's trade surplus with the U.S. narrowed in August, as exports were down 3% and imports fell 0.8%.  Outside the U.S., Canada's exports slid 5.5%, due in large part to a sharp (-32.5%) drop in exports to the U.K., while imports were up 2.2%, again due to a sizable increase in imports from the U.K. (+61%).

The pullback in exports during the month was driven in large part by lower commodity prices, particularly the sharp drop in oil prices.  The decline in volumes was much smaller, and will subtract slightly from overall growth in August. However, given the strength in exports recorded during 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, says TD Economics.

Moreover, with U.S. domestic demand still going strong and the Canadian dollar hovering around the 75 US cent mark - with more weakness likely in store - the rotation towards export-driven growth will continue.

Yesterday, Canada along with 11 other countries signed the Trans-Pacific Partnership agreement which encompasses about 40% of the global economy.  All the details have yet to be seen, but once implemented - which will take time as it still has to be ratified - the trade agreement should lead to lower tariffs and increased market access for several Canadian goods and services in member countries over the longer term, added TD Economics.

For Canada, while some concessions were made, the cost of being excluded from this massive trade deal could have been far greater.