Merchandise Trade Analysis – October 2016

Trade deficit shrinks to its lowest level since January

Canada's international trade performance improved dramatically in October after the one-time shipment of a massive piece of offshore oil and gas equipment from South Korea to Newfoundland and Labrador singlehandedly drove the trade deficit to record territory in September. That piece of equipment caused imports to jump by about $2.9 billion in September, and drove Canada's trade deficit from $2.1 billion in August to $4.4 billion.

Canadian Trade Summary
  Aug-16 Sep-16 Oct-16
Value ($billions)
Exports 43.6 43.4 43.6
Imports 45.7 47.7 44.7
Trade Balance -2.1 -4.4 -1.1
Percentage change
Export prices 0.4 0.9 1.0
Export volumes 1.0 -2.0 -0.7
Import prices -0.9 0.9 0.9
Import volumes 1.8 1.7 -6.3

With that transaction passed, October's trade numbers look much better. Exports rose by about 0.5 per cent to reach $43.6 billion, while imports fell 6.3 per cent to $44.7 billion. As a result, Canada's trade deficit dropped to $1.1 billion in October - its lowest level since January.

Canadian Merchandise Trade

The increase in exports in October was largely driven by price effects. Volumes were down in October, but Canadian exporters received better prices for their goods - especially those in the energy sector, where rising crude oil prices helped pad the bottom line. Meanwhile, import volumes were down sharply, reflecting once again the impact of that single utilities and process module delivery.

Canada's International Trade Balance

The combination of better energy prices, a low exchange rate and strengthening US economy are improving the outlook for Canadian exports. Through 10 months, exports in 2016 remain down about 1.9 per cent compared to the same period last year. However, October's export totals are higher than a year ago and exports should continue to improve in the coming months.

non-energy exports

It is worth noting, however, that Canada's export performance remains closely tied to the vagaries of world energy prices. Since January 2014, the value of energy exports plummeted as crude oil prices fell. Meanwhile, exports of all other products saw only modest growth. Now, as crude oil prices are picking up a little, exports of energy products are rebounding, while foreign sales of other products remain stubbornly flat.

October's trade numbers by industry reinforce this observation. The modest increase in exports that month was largely driven by two product types: crude oil; and motor vehicles and parts. Crude oil exports rose 5.5 per cent ($227 million), while deliveries of vehicles and parts were up 3.2 per cent ($250 million). While exports of forest products and primary metals were also slightly higher, foreign sales for most other major products were down. A sharp drop in pharmaceuticals and medicines deliveries drove consumer goods exports lower, while the volatile aerospace sector also saw a steep decline in exports in October.

export growth by product type

In terms of export destinations, most of October's export growth came in additional sales to the United States. Exports to that country were up $523 million - far and away the largest increase of any destination around the world. Exports to Saudi Arabia ($194 million) and the Netherlands ($121 million) were also higher. Meanwhile, there was a sharp decline in exports to the United Kingdom (down $276 million), as well as Brazil (down $168 million) and Mexico ($77 million lower).

Canada's top growing export markets

On the import side, although the utilities and process module was the big story, a number of other shipments into Canada were down as well. Energy product imports were 11.6 per cent lower, while Canadians also bought fewer primary metals products (down 12.5 per cent), food products (-3.2 per cent) and aerospace products (-4.5 per cent).

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