Canada's export recovery stalls as oil price falls

Canada’s trade balance with the world shifted from a surplus to a deficit in August, as exports stalled and the pace of imports picked up.

That is a sharp contrast to the U.S., where the trade deficit narrowed to $40.1 billion US,  compared to a revised $40.3 billion in July, mainly because of improved exports.

In Canada, there was a deficit of $610 million Cdn in August, compared to an adjusted surplus of $2.2 billion in July.

The recovery of Canadian exports, which economists had counted on because of the lower loonie, faded in August.

Exports were down 2.5 per cent to $44.2 billion, mainly because of weakness in auto parts and energy products.

The falling price of crude oil helped contribute to the downturn as producers are getting 4.9 per cent less per barrel. New York contracts fell from a high of $104 US a barrel in July to hover just above $95 in August, and they've fallen further to as low as $88 this month.

Imports rise in Canada

Meanwhile Canada's merchandise imports rose 3.9 per cent, with a spike in imports of precious metals and their alloys and crude oil and energy products.

Imports from the United States rose 1.4 per cent to $29.7 billion, while exports fell 2.5 per cent to $33.3 billion, shrinking the trade surplus with that country to $3.5 billion in August from $4.8 billion in July.

The strengthening U.S. economy was meant to boost Canada’s export potential, but the recovery has been spotty.

The August trade numbers were "a bit of a cold shower,"  Export Development Canada chief economist Peter Hall said, though he was optimistic about the rest of the year.

"Even though we've taken a one-month hit here, it certainly is a pause in a very strong trend," he said in an interview.

Hall said exports have expanded by 10.5 per cent since the previous year.

U.S. deficit narrows

U.S. exports continue to edge upwards despite the higher U.S. dollar.  

Exports increased 0.2 per cent to a record $198.5 billion, aided by increased sales of petroleum, telecommunications equipment and industrial engines. Imports also rose by a smaller 0.1 per cent to $238.6 billion.

The U.S. oil and gas boom continues to improve its trade outlook. For petroleum products, the trade deficit fell by $1.4 billion, partly as a result of falling prices and stronger exports.  U.S. exports of petroleum were up 2.2 per cent to $14.1 billion while petroleum imports fell 3.8 per cent to $27.2 billion.

“The dynamics in this month's trade report can almost entirely be viewed from a petroleum vs non-petroleum perspective,” TD economist Andrew Labelle said in a note to investors.

“Ex-petroleum, the deficit significantly rose, however it was more than offset by a sharper drop in the deficit for petroleum products. This story is expected to continue going forward, as gains in U.S. shale energy production will be at least partly offset by higher imports owing to robust domestic demand.”

Labelle warned that the rising U.S. dollar and the muted outlook for global growth risk threatening this improvement in the U.S. trade deficit.