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Canada’s declining merchandise trade deficit


In October 2010, Canada recorded a merchandise trade deficit of $1.5 billion, by November this has shrunk to $81 million.  Imports declined by 3.2% (most of this volume, ¼ of the decline was price), with the single largest contribution being energy which dipped 15.1% (Strange – more on that later).  Import volumes fell 2.4% and prices down 0.8%, decreased for a fourth consecutive month.  Energy products and machinery and equipment were the main factors behind the decrease in the value of imports. On the other side of the equation, exports rose by 0.8%


The big picture items:
  • Canada’s trade surplus with the U.S. nearly doubled from $1.7 to $3 billion – mainly because of a drop off in Canadian vehicle imports from the U.S. (11.5% decline).  Vehicle exports have been trending down since may 2010, falling a further 10% in Novermber.
  • Canada’s trade deficit with the rest of the world shrank marginally to $3.1 billion
  • Energy imports dropped by 15% and export of crude rose by 12.5% (Nat Gas down 17%).  The drop in import may have to do with a shift in the composition of the energy complex.
  • Price of exported industrial goods and materials increased by 3.9%, which was a leading factor in the overall export picture.
  • Canadian companies retooling programs seems to be at an end with a 3.3% decline in volume of imports of tools and machinery by Canadian companies.  The biggest decline was for wind turbines which fell by 26


The image of Canada’s trade balance is not entirely expected; November marked one of the largest increase in industrial employment.  The shift in demand for vehicle (in light of $90+ oil prices) away from light trucks to automobile has a big impact on the vehicle balance of trade (light trucks are mostly manufactured in the U.S. while Canada focuses on cars).  It is difficult to make any generalization as to Canada’s trade balance based on a single month of data.  However, it is evident that a balance between goods imports and exports has been re-established (for how long?).  Canada’s core strength are raw material (grain, energy and materials) and the price (and demand) for these goods have exploded over the past 24 months.

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