Canada has reported a trade surplus larger than anticipated, amounting to C$2.97 billion ($2.19 billion) in October, according to data from Statistics Canada. This surplus comes as exports experienced a slight increase, while imports registered a significant decline.
Analysts participating in a Reuters poll had forecasted a trade surplus of C$1.60 billion. September’s surplus was revised down to C$1.1 billion from the initially reported C$2.04 billion. The data reveals that total exports edged up by 0.1%, while imports saw a notable decrease of 2.8%.
The drop in imports was primarily driven by reduced demand for metal and non-metallic mineral products, as well as motor vehicles and parts, as per Statscan. In terms of volume, overall imports declined by 3.2%.
The motor vehicles and parts category experienced its first monthly decline since March, with passenger cars and light trucks accounting for the largest decline. Statscan attributed a substantial portion of this monthly decline to lower imports from the United States, partly due to supply disruptions caused by strikes by U.S. auto workers in October.
The decline in imports raises concerns about firms drawing down their inventories due to weakening demand. This, in turn, heightens the risk of an economic contraction in the fourth quarter, according to Stephen Brown, an economist with Capital Economics.
Canada recently experienced an unexpected contraction in its gross domestic product, and the Bank of Canada anticipates subdued growth until the end of 2024, influenced by high interest rates impacting the economy. The central bank has maintained its key policy rate at a 22-year high of 5%.
On the export front, the gains were driven by aircraft and other transportation equipment and parts, helping offset declines in energy products and basic and industrial chemical, plastic, and rubber products. Notably, exports of transportation equipment to Saudi Arabia played a significant role in the growth of the aircraft and other transportation category.
In terms of volume, total exports experienced a marginal decline of 0.1%. Exports to countries other than the United States saw a 3.9% increase, partly attributed to exports to Saudi Arabia.
Trade with the United States, Canada’s largest trading partner, witnessed declines in both exports and imports, suggesting a potential slowdown in international demand with key trading partners.
The trade data’s intricate details indicate a need to closely monitor international demand dynamics in the upcoming months, as noted by Marc Ercolao, an economist with TD. These developments in Canada’s trade balance have broader implications for the country’s economic outlook and global trade trends.