Canada: Trade Surplus Tightened in November as Energy Imports Rose

Most of the increase in imports came from refined petroleum energy products as refinery outages in Canada forced suppliers to turn to international markets to fill the gap. Combined with the increase in nuclear fuel and other energy products, total energy imports were up 11.6%—the strongest monthly percent increase since October 2022. In that context, the trade surplus with the United States narrowed from $12.1B in October to $11.7B the following month. Most other import product categories also saw gains. However, the weakness in consumer goods imports continued and declined for a second consecutive month with -2.2% in November.

Although 7 out the 11 product categories were up in November, total exports still fell. The decline is attributed to the drop in aircraft and other transportation equipment and parts exports as they returned to more normal levels after ticking up the previous month. Exports of metal and non-metallic mineral products also decreased 6.5%, mainly due to reduced transfers of precious metal assets within the banking sector. Excluding those two categories, exports increased 1.0%. That said, total export volumes were down 0.3% in November, as these same categories posted real declines. 

Today’s trade data didn’t nudge our real GDP growth tracking of 0.4% (q/q annualized) in Q4. That remains 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 going to hold rates steady at its upcoming meeting and is likely to begin cutting rates before mid-2024.

The recent decline in energy prices on weak demand combined with the global slowdown in international trade offer a dimmed outlook for exports in early 2024. That said, strength in other product categories could soften the drag. On the import side, the continued weakness in consumer goods could be a signal household demand is under pressure from high interest rates and economic uncertainty. As outlined in our recent Economic and Financial Outlook External link. This link will open in a new window., we expect net exports to weigh on real GDP growth in the first half of 2024, further reinforcing the need for rate cuts.