Canada's August merchandise trade balance narrowed sharply to $1.3 billion from $2.5 billion in July, according to figures released this morning by Statistics Canada. The figure was revised higher from an initially-estimated $2.3 billion. Expectations going into the report were for the deficit to narrow to $1.9 billion. The improvement in the nominal trade balance mainly reflected imports falling $1.24 billion (3.1%) to more than offset the $0.03 billion (0.1%) decline in exports.
The nation's number crunchers said the August weakness in imports reflected declines in every sector except energy products which managed an increase of 6.1% in the month following declines of 10.7% and 6.7% in July and June, respectively. The main areas of weakness were imports of industrial goods & materials (down $0.6 billion or 7.4%), reflecting a sharp decline in imports of metals and metal ores, and machinery & equipment (down $0.4 billion or 3.8%).
Within exports, the largest contributor to the headline decline was the $0.6 billion (6.1%) decrease in the industrial goods & materials component which was led by weakness in exports of fertilizers and iron ore. Energy product exports did rise $0.5 billion (5.5%) in August, though this only retraces a small portion of the declines seen in the component over the previous six months that reflected the impact of declining energy prices and production shutdowns.
The agency added that some of the weakness in nominal imports in August reflected the impact of falling prices, as the volumes declined by a lesser 2%, while price declines were wholly responsible for the decline in nominal exports as export volumes posted a 0.1% increase in the month. The fall in import volumes combined with the rising volume of exports resulted in the constant dollar (chained 2002 dollars) net export balance improving to $8.7 billion from $9.6 billion in July.
"Even with the improvement in the constant dollar trade balance in August," according to experts from RBC Economics, "the average real trade deficit in July and August has widened relative to the Q2 average, implying that net exports may act as a drag on overall economic growth in the third quarter."
