The Conference Board of Canada’s Senior Economist, Doris Chu offers the following insights on the merchandise trade data for September.
Although September’s merchandise trade numbers were less than stellar, stronger U.S. demand, a competitive Canadian currency, and a preliminary trilateral trade deal between Canada, the United States and Mexico should bring some relief to Canada’s challenged merchandise export sector over the near term.
—Doris Chu, Senior Economist, The Conference Board of Canada.
- Canadian merchandise exports declined by 0.2 per cent in September. Higher exports of energy products were not enough to offset lower exports of consumer products. In particular, food products declined by a steep 10.7 per cent due to lower exports of lentils and peas to India.
- At the same time, merchandise imports contracted by 0.4 per cent. The drop in imports was largely owing to a sharp 28.3 per cent decline in imports of aircraft and other transportation equipment. The one-time import of three icebreakers from Sweden in August led to a $598 million decrease in ship imports in September. Excluding the ship imports in August, total imports would have been up 0.8 per cent in September.
- With imports falling more than exports, Canada's merchandise trade deficit shrank from $551 million in August to $416 billion in September.
- Exports to the U.S. increased by 0.4 per cent. However, a larger 1.8 per cent increase in imports reduced Canada’s trade surplus with the U.S. from $5.0 billion August to $4.8 billion in September.
- At the same time, Canada’s trade deficit with the rest of the world narrowed to $5.2 billion in September from $5.6 billion in August as exports declined by 1.8 per cent and imports contracted by a greater 3.3 per cent.
- In real terms, exports declined by 1.2 per cent while imports fell by 1.5 per cent, indicating there are still some struggles in the trade sector.
- To the relief of Canadian exporters, a tentative trilateral trade agreement between Canada, the U.S., and Mexico was recently reached. Although the signing of the United States-Mexico-Canada Agreement (USMCA) at the end of September removes plenty of uncertainty and downside risk from the outlook for trade, several non-energy export sectors will continue to face numerous challenges over the near term and continue to undermine total export growth somewhat.
- Nevertheless, with the long-standing trade uncertainty lifted from the overall economic outlook, this will likely prompt the Bank of Canada to continue increasing interest rates over the near term. After jumping up 25 basis points in October, three more interest rate hikes are in store for Canada in 2019, with the next increase expected in January.