• Canada’s trade surplus widens to $5.8 billion
• Imports down 5.8%, underperforming exports

Canada’s trade surplus widened to $5.8 billion in August, $1 billion above market expectations, and up from a revised $4.2 billion in July. The better-than-expected results can be fully attributed to much weaker imports relative to exports. Imports fell significantly by 5.8%, the largest monthly decline since December 1991. Exports on the other hand, were down by a much smaller amount of 1.6%. There was a price story in August, but a much different one than has played out over the last 7 months, when higher export prices had been pushing the surplus up. In August, import price growth outpaced that of export prices, pushing the trade surplus down in nominal terms. If we strip out prices, imports are down a much more dramatic 9.3%, and exports are down for the third consecutive month by a lesser 0.8%.

The ongoing softness in the export sector is a spill over effect from a recession in the U.S. economy. Much of the decline in exports can be explained by a second consecutive decline in energy products of 9.7%, and a decline of 2.5% in automotive products. Both are consistent with a slowdown in production and weak personal consumption in the U.S., which has led to a decline in exports south of the border of 3.9%. Conversely, Canada’s trade position with the rest of the world improved significantly. Exports to countries other than the U.S. increased by 6.0%, and imports fell by 5.9% narrowing the trade deficit with all other countries to $2.8 billion, down from $4.2 billion in July.

On the import side, the fall in Canadian demand for foreign goods was spread across the globe. The decline in imports mirrors that of the export sector, with major declines in both automotive and energy products. Imports of automotive products fell by 14.2%, led by a 29.5% decline in trucks, which is consistent with North American consumers cutting purchases of big ticket items, beginning with autos. Imports of energy products were also down 29.5%, resulting from slower domestic economic activity.

August’s report is consistent with both weak U.S. economic activity and slowing domestic spending in Canada. We see these trends continuing over the next few quarters, with both exports and imports remaining under pressure. Still, the export side is likely to underperform in view of a deepening global economic slowdown, and the dampening impact on the value of outbound shipments from falling commodity prices. As a result, Canada’s trade balance is likely to narrow, adding another headwind to the Canadian dollar.

Diana Petramala, Economist

For further information, contact Derek Burleton at 416-982-2514.