Canada: Little Change for Trade Deficit in September as US Election Looms

While the topline trade balance didn’t move much in the month, a look under the hood reveals a lot more action than the headline suggests.

Looking first to exports, there were several offsetting movements during September. For instance, exports of aircraft and other transportation equipment and parts offset the decline in other goods exports, rising by 10.3% on the back of higher shipment of private jets to the United States this month. Energy exports fell by 2.6% mainly due to lower crude oil exports being down 3.1%. While the new Trans Mountain pipeline provided additional export capacity, a second consecutive month of lower crude oil prices indicates ongoing uncertainty and external factors driving future oil demand.

Global demand for precious metals has made an outsized contribution to trade volatility this year (see our recent report External link. on the drivers of gold prices). Exports of metal and non-metallic mineral products decreased in September, by 5.4%. This was driven by lower exports of precious metals, especially gold which fell 15.4% in September, driven by weaker exports to the United Kingdom and lower transfers to the United States. Meanwhile, most of the decline in imports in the month came from metal and non-metallic products (-12.7%), driven largely by an extreme dip in demand for precious metals (-46.4%).

At the same time, there was increased demand for energy products, with imports rising by 13.6%. The strength in energy imports was underpinned by higher demand for refined petroleum and energy which was up by 18.7%, following four consecutive months of flat to falling imports.

The weak trade print in September points to Q3 real GDP growth of 1.0% (annualized), lower than projected by the Bank of Canada’s 1.5% in its October 2024 Monetary Policy Report (MPR). Net exports are anticipated to be just a modest drag on overall economic activity in the third quarter. That said, we continue to track real GDP growth in Q4 roughly in line with the 2.0% published by the Bank last month.

All told, today’s trade release shouldn’t have any meaningful implications for monetary policy. The Bank will likely be more focused on the upcoming release of October jobs data on Friday, particularly in the context of the weak US jobs data last week. The outcome of the US election will be top of mind for central bankers as well (see our recent analysis External link. on the implications for Canada). The resulting market volatility and repricing of Fed rate cuts following the release may also be front of mind. That said, we remain of the view that the Bank of Canada will cut rates by 25 basis points in December and the Federal Reserve should do the same at its next rate announcement, assuming that the data evolves broadly in line with the central banks’ expectations.