Canada’s trade deficit narrows in August, net trade to positively contribute to economic growth in Q3

Canada’s trade deficit narrowed in August. It came in better than consensus expectations. The deficit narrowed to CAD 1.9 billion in the month from CAD 2.2 billion in July, as exports grew 0.6 percent and imports stayed flat. Imports remained unchanged mainly because of price, as volumes rose 0.8 percent. Volumes of exports rose 0.4 percent in the month.

Consumer goods rose 7 percent in the month. Also, mental and non-metallic mineral products, and energy products increased 6 percent and 4 percent respectively. Gains in these components mainly drove exports higher. Energy exports have now increased for six consecutive months. On the other hand, exports of motor vehicles and parts and aerospace and other transportation equipment fell by 6 percent and 16 percent respectively.

Energy imports declined in the month by 17 percent, predominantly because of lower volumes. It ended a five streak of gains. On the other hand, imports of metal and non-metallic mineral products rose 9 percent, whereas consumer goods and motor vehicles and parts increased 1 percent each in the month.

Canada’s trade surplus with the U.S. narrowed to CAD 2.5 billion in August as exports to the nation fell 1.6 percent, dropping more than imports that declined 0.1 percent. In the meantime, the country’s trade deficit with the remainder of the world narrowed to CAD 4.4 billion as exports rose by almost 8 percent, the biggest monthly rise in more than two years. Meanwhile, imports grew just 0.3 percent.

Canada’s exports seem to be moving in the correct direction, albeit slowly, after stalling in the first half of 2016, said TD Economics in a research note. However, the performance in July and August is quite better than registered in the second quarter. This, along with weak import growth in the two month period, implies that the net trade would add positively to overall economic growth in the third quarter, according to TD Economics.

Several forecasters are keeping a close watch on the trade numbers, awaiting signs of a rebound in the rotation towards export-led growth.

“We expect further progress to be made on this front in the coming months, as the recent uptick in U.S. economic activity should lead to increased demand for Canadian-made goods”, added TD Economics.