Canada's Trade Deficit Steady in September at C$3.18 Billion -- 2nd Update

By Paul Vieira Features Dow Jones Newswires

Canadian exports fell in September for a fourth straight month and the country's trade deficit with the rest of the world remained largely unchanged from the previous month, marking the worst spell in Canadian trade since the oil-price swoon from three years ago.

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Canada's merchandise trade deficit in September stood at a seasonally adjusted 3.18 billion Canadian dollars (US$2.48 billion), Statistics Canada said Friday. The previous month's trade deficit was revised to C$3.18 billion from the earlier estimate of C$3.41 billion. Market expectations were for a trade deficit of C$3 billion, according to economists at Royal Bank of Canada.

Exports fell 0.3% to C$43.56 billion, while imports also declined 0.3% to C$46.74 billion. The September decline in exports marks a fourth-straight month of decreases. The last time exports were on that big a losing streak was in 2014, amid a downturn in commodity prices. As a result, exports fell 7.9% in the third quarter from the previous three-month period, or the steepest quarterly decline in the postcrisis period.

"That means trade will subtract heavily from third-quarter economic growth," BMO Capital Markets said in a note to clients. It added this would force the firm to revise downward its call for 2% annualized expansion for the July-to-September period. In its latest quarterly economic outlook, the Bank of Canada anticipates growth of 1.8% in the third quarter.

September's weakness in exports was driven by a 10.6% drop in motor vehicles and parts, with sales abroad of auto-related components hitting their lowest level since February, 2015. Excluding the auto sector, the data agency said exports rose 1.8%.

Auto-sector exports were hit by a strike by workers at a General Motors Co. sport-utility factory in Ingersoll, Ontario, as well as retooling at some factories to accommodate production of certain vehicle models destined for the U.S.

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On a volume, or price-adjusted, basis, exports rose in September, 0.3%. So did imports, up 1.3%.

Canada's monthly trade data covers the export and import of goods, and doesn't include services.

In keeping its policy rate unchanged at its latest meeting, the Bank of Canada said exports were weaker than anticipated, due in part to strength in the Canadian currency. Since the Oct. 25 central bank decision -- which also include a pledge to take a "cautious" approach to policy making -- and the release of disappointing indicators, the Canadian dollar has lost roughly 2% in value relative to the U.S. dollar.

Nevertheless, the central bank said it still expects exports, along with business investment, to make a "solid" contribution to growth. However, the Canadian trade outlook is muddled by the uncertainty surrounding the future of the North American Free Trade Agreement, which the Trump administration wants major changes to or else it is threatening to withdraw from the pact.

The next round in talks to renegotiate Nafta take place in Mexico later this month, after discussions turned contentious among U.S., Canadian and Mexican officials in October over White House proposals that would reshape the continental trade infrastructure.

Meanwhile, the U.S. also released its September trade figures Friday, and the trade deficit widened to $43.50 billion on a strong gain in imports.

On a geographic basis, Canadian exports to the U.S. fell 1.2% to C$32.28 billion, mostly on lower auto-sector sales. Exports to non-U.S. markets rose 2.4% to C$11.28 billion, led by sales of unwrought gold to China and pharmaceutical products to Brazil. Meanwhile, Canadian imports of U.S. products climbed 0.4%. As a result, the U.S. merchandise trade deficit with Canada narrowed to C$2.16 billion.

On the export side, the weakness on the auto side was offset by a 7.2% gain in the sale of energy products. The data agency noted exports of crude oil were higher in September than in previous years.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

November 03, 2017 10:22 ET (14:22 GMT)