CN Rail Strike Takes a Toll on Canada’s Trade Balance

(Bloomberg) --

Canada’s trade gap reached C$1.1 billion ($847 million) in November after a multi-day rail strike disrupted transportation of key goods, causing exports to drop for a third straight month and raising concerns about the strength of the domestic economy.

The headline figure slightly beat economist expectations for a C$1.2 billion trade deficit, but the gap only narrowed because October’s numbers were revised to a C$1.6 billion deficit from an originally reported C$1.1 billion deficit. Exports fell 1.4% on the month, led by shipments of energy products.

The soft trade report follows a series of weak economic data releases over the past several weeks, potentially adding to pressure on the Bank to Canada to consider an interest rate cut in the first half of 2020.

“Overall, the trade data add to the mounting evidence that Q4 GDP growth is likely to be much weaker than the Bank of Canada’s last MPR projections—and maintains our expectation that the Bank will move to cut the overnight rate target in the first half of 2020,” Brett House, deputy chief economist at Bank of Nova Scotia in Toronto, said by email.

Canada’s currency extended declines after the report, falling 0.3% to C$1.3011 against its U.S. counterpart at 8:56 a.m. Toronto time. Two year government bond yield fell 1 basis point to 1.63%.

Key Insights

• The report paints a picture of a fragile trade backdrop in Canada and while part of the weakness is attributable to the rail strike, it will be hard for policy makers to shrug it off given the recent disappointing numbers across jobs, manufacturing and retail sales reports
• One of the few bright spots in the report was record shipments to the U.K., mostly gold and crude. Excluding precious metals, Canada’s export volumes fell 4.3% in November, the largest monthly drop since 2009
• October’s trade deficit was revised to C$1.6 billion after Statistics Canada made some revisions to the way it measures shipments of high-value transactions such as art

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• Canada’s trade surplus with the U.S. narrowed to C$4.2 billion as exports decreased 3.3% and imports fell 1.1%; Canada’s trade deficit with China narrowed to C$1.9 billion
• The CN rail strike in November contributed to an export decrease of 1.4% to C$48.7 billion. Energy products led the decline, down 7.4% on crude shipments following a pipeline rupture in late October
• Declines in imports -- down 2.4% to C$49.8B -- were widespread, with 10 of 11 categories posting decreases, led by aircraft and other transportation equipment
• Exports and imports declined on both a nominal and a volume basis

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Shelly Hagan in Ottawa at shagan9@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Stephen Wicary

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