Canada Trade Deficit in August Narrows Slightly to C$2.45 Billion -- Update

By Paul Vieira

OTTAWA--Canadian exports and imports fell in August after two straight months of strong gains, with sales to foreign markets other than the U.S. hitting their lowest level in nearly three years. The merchandise trade deficit with the rest of the world narrowed slightly from the previous month.

In nominal terms, exports and imports remain below levels set in February, or before the pandemic hit North America. The August report suggests the recovery moved into a lower gear, well before a second wave of Covid-19 infections started in Canada's most populous regions.

Statistics Canada said Wednesday that Canada's deficit in the global trade of merchandise goods in August came in at 2.45 billion Canadian dollars, or the equivalent of US$1.85 billion. This marked a small narrowing from the revised C$2.53 billion goods deficit in the previous month, and was more or less in line with market expectations for a C$2.5 billion shortfall, according to economists at Bank of Nova Scotia.

In August, exports fell 1%, to C$44.93 billion, whereas imports dropped 1.2%, to C$47.38 billion. In the previous month, exports and imports surged by 10.5% and 12.5%, respectively. In volume, or price-adjusted, terms, exports decreased 1.4% and imports edged 0.5% downward.

Weakness in exports and imports were broad-based.

"The declines seen in two-way trade were troubling," Royce Mendes, economist at CIBC Capital Markets, said of the August trade report. "The slowdown in trade showed up earlier than we had anticipated, and the drop in export volumes suggests that the recovery's momentum could have slowed more than anticipated in August."

The data agency said exports and imports sit 7% and 5.1%, respectively, below prepandemic levels, signaling there still is a way to go before Canada's trade-dependent sector fully recovers.

The Bank of Canada has said it is prepared to keep its benchmark interest rate at 0.25%, or near zero, until 2022 and maintain extraordinary stimulus--through large-scale asset purchases--to aid the country's recovery.

Complicating the outlook is a rapid increase in Covid-19 infection recorded in Canada's two biggest provinces, Ontario and Quebec, which account for roughly 80% of the country's cases. The seven-day average of confirmed Covid-19 cases, as of the start of this week, has more than tripled versus a month ago, according to data from Johns Hopkins University.

Canadian exports to the U.S., by far its largest trading partner, climbed 1%. Roughly three-quarters of all Canadian exports are U.S.-bound. Excluding the U.S., Canadian exports dropped 6.8%, to nearly C$12 billion, or the lowest level observed since November, 2017.

Meanwhile, in a separate release, Statistics Canada said the trade surplus in services narrowed to C$168 million, from C$203 million in the previous month. As a result, Canada's trade balance of goods and services in August hit C$2.28 billion, or a slight narrowing from the C$2.331 in the previous month.

Write to Paul Vieira at [e-mail]

(END) Dow Jones Newswires

10-06-20 0931ET