Canada’s trade performance has fallen back into deficit as an anticipated steep decline in exports in the face of a slowing global economy became a reality in October.
Exports dropped by a massive 3%, almost reversing September’s outsized 4.2% gain.
On balance, Canada posted an $885-million deficit in October as exports fell to $38.4 billion and imports rose 1.3% to 39.3 billion. In September, the surplus was slightly over $1 billion.
Analysts had anticipated a payback from September’s strong numbers, reasoning that the quick pace of export growth in the energy sector — coming off temporary refinery shutdowns over the summer months — were not sustainable going forward.
But the correction was much sharper than expected. Economists had forecast a modest surplus of $700 million in October.
“Overall, there’s not much to debate here — trade will drag heavily on gross domestic product growth in the fourth quarter after adding a massive five percentage points in Q3,” said Douglas Porter, deputy chief economist with BMO Capital Markets.
CIBC’s Emanuella Enenajor added that the Canadian economy should expect more of the same going forward. With global demand for exports softening, trade will likely become a drag on Canadian output growth next year, she said.
This week, the Bank of Canada reaffirmed its view that the global economy was braking and that the United States — by far Canada’s largest export market — was in the “midst of the weakest recovery since the Great Recession.”
Even emerging markets like China are expected to see more modest economic growth next year.
Still, Porter said the situation is not as bleak as October’s result might indicate. Exports remain 12.6% higher than they were a year ago, although they are still not back to pre-recession levels. And while the U.S. recovery is sluggish, the country’s economy is growing, which should provide a floor to Canadian exports.
There was even some positives in October’s report. Auto products posted a four per cent increase, although the elevated level of the Canadian dollar likely kept producers from fully benefiting from strong U.S. car sales.
October’s fall-off in exports, however, was broad-based, with six of seven key categories turning negative.
Industrial goods and materials led the decline, falling six per cent, while energy products also dropped based on fewer shipments of coal and petroleum.
Canada’s trade performance with the U.S. was responsible for about half of October’s deficit. Canada’s surplus with its largest trading partner narrowed by $1 billion as exports fell 0.9% and imports rose three per cent.
As well, exports to countries other than the United States fell 7.9% to $10.8 billion. Imports from countries other than the United States edged up 0.1% to $14.7 billion.