CA: Merchandise Trade

Thu Feb 05 07:30:00 CST 2015

Consensus Actual Previous Revised
Level C$-1.1B C$-0.65B C$-0.64B C$-0.34B
Imports-M/M 2.3% -2.7%
Imports-Y/Y 7.7% 6.2%
Exports-M/M 1.5% -3.5%
Exports-Y/Y 7.9% 8.4%

The red ink on the merchandise trade balance widened out from a downwardly revised C$0.34 billion in November to a surprisingly small C$0.65 billion at year-end. The deterioration reflected a 1.5 percent monthly increase in nominal exports that was more than offset by a 2.3 percent rise in imports.

The real trade balance held up rather better with export volumes rising a solid 3.5 percent and imports up a more modest 2.8 percent.

The bilateral surplus with the U.S was broadly stable at C$3.1 billion as exports edged up 0.6 percent from mid-quarter and purchases from across the border climbed 0.8 percent.

Within the monthly gain in overall nominal exports the main winners were metal and non-metallic mineral products (13.1 percent), metal ores and non-metallic minerals (11.9 percent) and electronic and electrical equipment and parts (5.5 percent). Industrial machinery, equipment and parts (4.6 percent) also performed well but energy slumped 10.3 percent.

Imports were supported by sizeable monthly increases in energy (9.3 percent), farm, fishing and intermediate food products (8.0 percent) and metal and non-metallic mineral products 6.1 percent). The steepest fall was in metal ores and non-metallic minerals (15.6 percent) ahead of aircraft and other transportation equipment and parts (4.3 percent).

November was a poor month for the Canadian economy with real GDP contracting 0.2 percent on the month. However, despite a soft December employment report, today's trade data provide some reason for a expecting moderately respectable end to the year. Even so, the chances are that the BoC was overly optimistic in the 2.5 percent (saar) fourth quarter growth estimate it made last month and, if so, likelihood of another near-term cut in benchmark interest rates remains quite high.

Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets. This is particularly true for Canada which relies on exports and particularly those to the U.S. for growth. It should be noted that this report focuses solely on goods trade - it leaves services trade for the quarterly national accounts and balance of payments reports.

Imports indicate demand for foreign goods while exports show the demand for Canadian goods in the U.S. and elsewhere. The Canadian dollar is particularly sensitive to changes in its trade balance with the U.S. For the most part, Canada's trade balance is in surplus thanks to its exports to the U.S. Both the nominal export and import values are split into volume (real) and price components. This permits trade data to be analyzed for both changes in trade patterns as well as changing prices. This has been particularly important of late given energy price volatility and the impact on Canada's merchandise shipments. A word of caution -- the data are subject to large monthly revisions. Therefore, it can be misleading to form opinions on the basis of one month's data.

The bond market is sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.