EconoFACTS

January 07, 2020 | 09:07

Cdn. Merchandise Trade Balance (Nov. 2019) — Railroaded

Economist

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Benjamin Reitzes

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Canada's merchandise trade deficit narrowed to $1.1 bln in November, from a downwardly revised $1.6 bln shortfall in the prior month (initially reported as $1.1 bln). Recall that there was a CN rail strike in the month and that appeared to have a big impact on the figures, with meaningful volatility in a number of categories. It also suggests we'll get some rebound in December.

Exports fell 1.4% in the month, with raw metals/minerals (-14.4%) and energy (-7.4%, driven by pipeline issues, Keystone shutdown for a spell) pacing the declines. There were some bright spots—agriculture (+9.6%) metal/mineral products (+7.3%)—but all told 9 of 13 sectors were lower. The story was similar for imports, though a steeper 2.4% drop allowed the trade balance to improve. Fully, 11 of 13 categories were down, with aerospace (-13.8%) and energy (-7.5%) seeing the biggest slide.

In volume terms, exports fell 1.9%, while imports dropped 1.6%. Through the first two months of Q4, exports are on pace to drop nearly 10% annualized, and imports a lesser 3.6%. Barring some big revisions, net exports look as though they'll subtract about 1 percentage point from GDP growth in Q4. That would be a second consecutive negative quarter for trade and three out of four for 2019. Note that Q4 was already struggling to eke out much growth with the negative start to the quarter (October GDP was -0.1%) weighing heavily. We will be cutting our Q4 growth forecast to 0.3% (from 0.8%) following this report.

The Bottom Line: Despite a narrower deficit, the November trade report revealed that Canadian trade continues to struggle which does not bode well for GDP in the final quarter of 2019. Add in the recent strength in the Canadian dollar and don't be surprised if we get a more cautious tone from Governor Poloz in his fireside chat later this week.

Table 1 - Canada — Merchandise Trade

(C$ billions)

Source: BMO Economics, Haver Analytics