EconoFACTS

October 06, 2020 | 09:08

Cdn. Merchandise Trade Balance (Aug. 2020) — Downshifting

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 a snick to $2.45 bln in August, bucking expectations for a more sizeable improvement. The prior month was revised a bit wider as well to $2.53 bln from $2.45 bln initially. Exports fell 1%, breaking a string of three consecutive monthly gains and putting a modest dent in the recovery from April's lows. There was notable weakness in aerospace (-14.5%) and autos (-6.8%), with 8 of 13 categories was lower. Note that there will be some seasonal issues with any auto-production related data in August, as the usual shutdowns we get in July were shorter this year (if they happened at all). That likely pushed up July activity but the lack of a seasonal rebound will push August lower. Indeed, after a brief two-month spurt with an auto trade surplus, the sector has moved back to a nearly $1 bln deficit. Energy exports rose 3.5%, but remain down 30% y/y amid sharply lower prices. Meantime, imports dipped 1.2%, with an even deeper drop in aerospace (-25.3%) weighing. Industrial machinery (-4.4%) and electrical equipment (-2.9%) saw steep declines as well, which generally doesn't bode well for business investment.

In volume terms, the picture was notably weaker, with exports falling 2.1%, while imports were down only 0.4%. Exports are at 92.3% of pre-COVID levels, while imports are at 96.5%. While there's still one month left to go in Q3 and big revisions are always possible, it looks like trade is going to subtract heavily from GDP in the quarter.

On the services side, the trade surplus narrowed slightly to $168 mln in August. A slight deterioration in commercial and travel services outweighed a small improvement in transportation. Whenever travel finally re-opens, expect services trade to return to a deficit.

The Bottom Line: The recovery in trade came to halt in August, with a small dent what was looking like a v-shaped rebound. Similar to most other economic data points, expect a slower rebound from here on in after the initial sharp improvement off the COVID-lockdown lows.

Table 1 - Canada — Merchandise Trade

(C$ billions)

Source: BMO Economics, Haver Analytics