Canada’s Trade Deficit Shrinks on Exports of Crude, Aircraft

(Bloomberg) --

Canada’s trade gap narrowed on a gain in energy and aircraft shipments, though overall export volumes continued to decline, clouding the picture on an otherwise better-than-expected result.

The nation posted a C$955 million ($716 million) trade deficit in August, from a revised C$1.38 billion in July, Statistics Canada said Friday in Ottawa. The result surprised to the upside, beating economist expectations for a C$1.2 billion deficit.

Canadian shipments have stabilized this year after suffering a harsh end to 2018 on weak oil exports. Still, exports on a volume basis, which strip out price effects, have struggled in recent months, and are down 1.4% since peaking in May. Economists expect the country’s output growth to slow to 1.5% in the third quarter, partly on global trade tensions, after a 3.7% expansion in the prior period.

“While the headline was slightly better than consensus and have short-end yields in Canada a touch higher, the details were somewhat softer,” Royce Mendes, an economist at CIBC in Toronto, said in a note to clients. While two-way trade was up because of the gain in exports, “the details suggest that might not mean all that much for August GDP,” he said.

Total exports increased 1.8% in August after falling for two consecutive months. Shipments of business jets to the U.S. led gains in aircraft trade, while higher crude oil prices drove energy product exports. On a volume basis, exports dropped 0.2%.

Metal and non-metallic mineral shipments were the largest contributor to the 1% gain in imports in August. Gold imports reached the highest level in more than two years, reflecting an increase in asset acquisitions by Canadian companies. In volume terms, imports rose 1.2%.

The currency pared gains after the report, and was trading 0.2% higher at C$1.3308 against its U.S. counterpart at 8:40 a.m. Toronto time. Two-year government bond yields rose 1 basis point to 1.43%.

Canada’s trade surplus with the U.S., its main trading partner, widened to C$4.9 billion in August as export gains outpaced imports. Exports to China expanded despite disruptions to commerce between the two countries amid a diplomatic dispute involving the arrest of a top Huawei Technologies executive on a U.S. extradition request.

July’s trade deficit was revised to C$1.38 billion, after an initially reported shortfall of C$1.12 billion, the statistics agency said.

--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

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