Canada: Trade Surplus Widened Again as Oil Prices Rose

Energy products accounted for 90% of the rise in exports, mainly due to the increase in crude oil prices resulting from voluntary OPEC+ production cuts. This should have supported exports in this category in October as well.  Exports excluding energy still posted monthly growth of 0.3%, even though metallic and non-metallic products fell by 10.7% due to lower gold asset transfers within the banking sector, unwinding much of August’s advance. In addition, the trade surplus with the United States grew for the third consecutive month, rising from $11.0 billion in August to $11.7 billion in September.

Despite the U.S. strike in the auto sector, imports of cars and parts rose by 5.8% in September, as inventory rebuilding made up for lost production. Imports of consumer goods were also up, but not enough to return to their pre-July British Columbia port disruption levels. With recent weakness in retail sales, this points to further soft data. That said, declining prices meant that total real imports were up 1.7%.

Today’s trade data pushes upward our real GDP growth tracking to 0.3% (q/q annualized) in Q3. That remains well below the Bank of Canada’s 0.8% forecast in its most recent Monetary Policy Report. Accordingly, it reinforces our view that the Bank of Canada is probably going to hold rates steady in December.

The September increase in export volumes suggests a stronger handoff to Q4 for goods-producing sectors like agriculture and resource extraction. On the import side, the softness in consumer goods could be a signal household demand is under pressure from high interest rates and economic uncertainty. While providing mixed signals as to the implications for Q4 real GDP growth, it hasn’t changed our tracking for a modest acceleration in growth relative to Q3.