Canadian trade deficit widens in August

Canada's trade deficit widened to $2.5 billion in August, from $817 million during the month prior.  Exports slid 3.6%, while imports inched up by 0.2%.   In real terms, the picture was a little better, with export volumes down by a more modest 0.3% and import volumes down 0.1%.

The drop in exports was led by energy products (-14.7%), but this was entirely a price story as volumes were up 2%.  Excluding energy, exports were down by a smaller 1.5%. Exports of consumer goods were down 8% following a rise in July.  Precious metals were the key driver behind the swings in this sector over the past two months.  Providing some offset, motor vehicle and parts exports were up 3.1%, driven by both volumes and prices.  Metal ores and non-metallic minerals exports were also up, due to higher potash and copper ores and concentrate exports.

Imports were up for a fourth straight month, led by a rise in consumer goods imports (+2.6%) and metal and non-metallic mineral product (+6%) imports.  On the flipside, imports of electronic and electrical equipment (-7.9%) and aircraft and other transportation (-14.4%) were down during the month.

Canada's trade surplus with the U.S. narrowed in August, as exports were down 3% and imports fell 0.8%.  Outside the U.S., Canada's exports slid 5.5%, due in large part to a sharp (-32.5%) drop in exports to the U.K., while imports were up 2.2%, again due to a sizable increase in imports from the U.K. (+61%).

The pullback in exports during the month was driven in large part by lower commodity prices, particularly the sharp drop in oil prices.  The decline in volumes was much smaller, and will subtract slightly from overall growth in August.  However, given the strength in exports recorded during previous two months, the Canadian economy is still tracking growth of around 2.5% for the third quarter - above the Bank of Canada's latest forecast of 1.5% published in July.

Moreover, with U.S. domestic demand still going strong and the Canadian dollar hovering around the 75 US cent mark - with more weakness likely in store - the rotation towards export-driven growth will continue.

"Yesterday, Canada along with 11 other countries signed the Trans-Pacific Partnership agreement which encompasses about 40% of the global economy.  All the details have yet to be seen, but once implemented  which will take time as it still has to be ratified - the trade agreement should lead to lower tariffs and increased market access for several Canadian goods and services in member countries over the longer term. For Canada, while some concessions were made, the cost of being excluded from this massive trade deal could have been far greater", says TD Economics.