Skip to main content

Canada’s short-lived trade surplus has evaporated, as tepid exports resulted in a small deficit for September, while revisions to the August figures dropped them into the red.

Statistics Canada reported a merchandise trade deficit of $416-million for September, amid declines in both exports and imports. The result was disappointing for economists, who had anticipated a small surplus in the month.

What’s more, Statscan made a major revision to August’s import numbers, wiping out its previously reported $526-million surplus and turning it into a $551-million deficit. The statistical agency attributed the revision to the arrival of three “high-value” icebreakers from Sweden not reported in time for the original August data.

“This was a disappointing [September number], boosted further by the significant revision to August’s data,” Toronto-Dominion Bank economist Omar Abdelrahman said in a research note. “Declines in both exports and imports confirm the slowing-momentum narrative, both domestically and globally.”

September exports fell 0.2 per cent in dollar-value terms, despite stronger prices, as volumes dropped 1.2 per cent. The slowdown was led by a 3.9-per-cent slump in consumer goods, while electronic and electrical exports fell 4.8 per cent. The declines were partly offset by a 2.3-per-cent rise in energy exports, reflecting strong U.S. demand for refined products.

Imports fell 0.4 per cent in September, again despite higher prices, as volumes declined 1.5 per cent. The transportation equipment segment was the biggest contributor to the drop, down 28.5 per cent, reflecting the drop-off following the spike from the three icebreakers in August. Energy imports tumbled 11.5 per cent, as crude oil imports were curtailed by maintenance shutdowns at some Canadian refineries.

The unusually large August revision cancelled out what had been Canada’s first reported trade surplus in 20 months. Statscan said it’s not uncommon for the documentation of “high-value transactions” to arrive late in the collection of monthly trade data. What is unusual, however, is the substantial total value of the three ships, arriving all at once, to generate such a significant swing in the import numbers.

Nevertheless, the rewriting of the August numbers left Canada’s net trade performance over the summer looking somewhat weaker than previously thought. With the September balance also coming in below expectations, the results left economists pondering whether trade might have contributed less to third-quarter gross domestic product growth than they have been baking into their estimates.

“For the third quarter as a whole, import volumes were down 1.2 per cent, whereas exports volumes also fell a less drastic 0.3 per cent,” Mr. Abdelrahman said. He said the figures put third-quarter GDP on track for a 1.8-per-cent annualized growth pace – well below the second-quarter rate of 2.9 per cent, which was largely fuelled by strong net trade. That third-quarter estimate is also slightly below the 2-per-cent pace that TD and others projected after the August GDP report earlier in the week.

But Canadian Imperial Bank of Commerce senior economist Nathan Janzen argued that the big August revision shouldn’t weigh on third-quarter GDP estimates. He said the arrival of the three ships, while reducing net trade, would show up elsewhere in the GDP data as “either a stronger investment gain or a build in inventories.”

Others noted that strong imports of industrial machinery and equipment in the third quarter are a sign that business investment continued to pick up, which should be a positive for GDP growth.

“After all the revisions and swings, it looks like trade still added solidly to growth in the third quarter,” Bank of Montreal senior economist Robert Kavcic said in a research note.

Despite heightened trade tensions with the United States during the month, Canada’s business with its trading partner accelerated, as exports rose 0.4 per cent and imports rose 1.2 per cent. Canada’s goods trade surplus with the United States dipped to $4.8-billion in September from $5-billion in August.

However, Statscan noted that Canada’s trade with all countries other than the United States slowed, with exports down 1.8 per cent and imports down 3.3 per cent. Canada’s non-U.S. trade deficit narrowed to $5.2-billion from August’s $5.6-billion.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe