CA: Merchandise Trade

Tue Feb 06 07:30:00 CST 2018

Consensus Actual Previous Revised
Level C$-2.0B C$-3.2B C$-2.5B C$-2.7B
Imports-M/M 1.5% 5.7% 6.3%
Imports-Y/Y 4.8% 8.1% 8.6%
Exports-M/M 0.6% 3.7% 3.6%
Exports-Y/Y 0.4% 0.0% 0.1%

The December merchandise trade deficit expanded to C$3.2 billion from a revised C$2.7 billion in November. On the month, imports rose 1.5 percent and exports were up 0.6 percent, both led by energy products. On the year, imports were up 7.8 percent while exports were up only 0.4 percent.

Monthly imports increased in 9 of 11 sections. Volumes rose 1.0 percent and prices increased 0.5 percent. Higher imports of energy products and industrial machinery, equipment and parts were partially offset by lower imports of aircraft and other transportation equipment and parts. Energy products were up 16.9 percent. Imports of industrial machinery, equipment and parts also contributed to the overall gain, up 6.3 percent. Following two strong monthly increases, imports of aircraft and other transportation equipment and parts were down 23.4 percent as fewer airliners were imported from the United States.

Total exports rose for the third consecutive month despite decreases in 6 of 11 sections. Prices were up 0.5 percent while volumes were essentially unchanged. Higher exports of energy products, and metal and non-metallic mineral products were partially offset by lower exports of consumer goods. Exports excluding energy products decreased 0.6 percent. Exports of energy products rose 6.2 percent, the fifth consecutive monthly increase and the highest level since November 2014. Also contributing to the overall increase were higher exports of metal and non-metallic mineral products, up 7.7 percent.

Following a 5.6 percent increase in November, imports from countries other than the United States rose 6.8 percent, notably on higher imports of passenger cars and light trucks from Germany as well as refined petroleum energy products from the Netherlands. Exports to countries other than the United States rose 4.9 percent, led by Japan (aircraft), India (potash), the United Kingdom (unwrought gold) and Hong Kong (also unwrought gold). As a result, Canada's trade deficit with countries other than the United States widened from $6.0 billion in November to $6.6 billion in December.

Imports from the United States fell 1.3 percent, while exports to the United States were down 0.8 percent. Canada's trade surplus with the United States widened slightly from $3.3 billion in November to $3.4 billion in December.

The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness. Nominal data are supplied with regards to principal trading partners and product classification.

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.