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The September merchandise trade balance registered a surplus of
USD1.9 billion. August's surplus was revised from USD1.9 billion to
USD1.5 billion, due to stronger imports and weaker exports.
Nominal exports fell 2.3% month on month (m/m) to USD53.0
billion, while imports declined 3.0% m/m to USD51.1 billion.
Considering price impacts, trade performance was worse in
volume terms, as exports dropped 3.0% m/m and imports fell a
further 4.9% m/m.
Third-quarter real exports rose 9.6% quarter on quarter at an
annualized rate (q/q a.r.) and real imports declined 7.0% q/q
a.r.
Although September marks the fourth consecutive merchandise
trade surplus, the widening of the surplus was achieved by poor
import performance and lower trade flows. The reduced automotive
trade flows in August, because of the ongoing semiconductor
shortage, greatly intensified in September. Motor vehicle and parts
exports plummeted 17.9% m/m while imports decreased 13.6% m/m.
Excluding these trade flows, exports and imports would have fallen
0.5% m/m and 1.2% m/m respectively. Overall, 6 of 11 export product
categories declined during the month. Metal and non-metallic
mineral products as well as forestry products and building
materials were the other major export drags. Partially offsetting
this was USD12.6 billion in energy product exports. Aided by higher
prices, crude oil exports advanced 7.2% m/m to a record high value.
A welcome 2.9% m/m rebound was registered in agriculture and
intermediate food product exports, after two consecutive export
declines and drought conditions across central Canada through the
summer months. However, detailed data was mixed, with considerably
weaker wheat and animal product exports.
Nominal imports were down in 7 of 11 categories. As with
exports, metal and non-metallic mineral product imports were
notably soft, with copper imports unwinding from an unusually high
August level. Canadian refinery shutdowns and Hurricane Ida
hampering US crude oil production were partly to blame for the
13.5% m/m decline in crude oil imports. Aircraft and other
transportation equipment imports and agriculture and intermediate
food product imports were the only categories to see any
significant gain over August.
The wider merchandise surplus in September was offset by a wider
international services trade deficit—recorded in a
separate release. A large increase of commercial service imports
was the primary driver behind the service deficit increasing from
USD285 million to USD624 million. However, it was the performance
of international travel services that was most noteworthy, as
beginning 7 September, all fully vaccinated foreign nationals could
enter Canada for non-essential purposes. This helped push travel
service exports (visitors to Canada) up 18.4% m/m. A similar gain
was seen last month after the same restrictions were removed for US
travelers. In addition, Canadian travelers continued to be more
comfortable with international travel; service imports (typically
Canadians visiting abroad) have also seen double-digit monthly
gains in August and September. The relaxing of these restrictions
has created a starting point for the travel services recovery,
which remains the only significant laggard in overall services
trade flows, relative to pre-pandemic levels. With the US opening
the land border to non-essential travel in early November, further
recovery of travel service imports is expected to put downward
pressure on the total trade balance.
Based on the volume growth differential between goods exports
and imports, net merchandise trade should contribute strongly to
third-quarter real GDP growth and help offset the net export drag
from the previous quarter—in line with the IHS Markit forecast.
The difficulties faced within the automotive manufacturing sector,
highlighted by this release, helps explain why the advance estimate
for September real GDP by industry was flat. However, the breadth
of manufacturers in the IHS Markit Canada Manufacturing PMI
reporting an increase in new export orders widened in October. This
provides some upside for fourth-quarter merchandise trade within
non-automotive manufacturing sectors.
Posted 22 November 2021 by Evan Andrade, Sr. Economist, Economics & Country Risk, IHS Markit
