Canada’s recently improving trade balance took a surprise swing to a record deficit in September, as a single huge shipment of machinery for the Hebron offshore oil project triggered a one-time spike in the country’s imports while export volumes slipped.
Statistics Canada reported that the September merchandise trade deficit swelled to $4.1-billion from August’s $2-billion, topping the previous record of $3.9-billion last June. Imports surged 4.7 per cent to a record $47.6-billion, while exports inched up 0.1 per cent to $43.5-billion, with higher prices offsetting a slip in export volumes.
But the national statistical agency noted that the import figures were juiced by a single massive import: a 30,000-tonne module for the Hebron oil platform off the Newfoundland coast. The module, built in South Korea, arrived in Canadian waters in early September. Though Statscan didn’t disclose the specific value of the module shipment, it is believed to have accounted for essentially all of a $2.9-billion spike in the country’s imports of industrial machinery, equipment and parts in the month.
Excluding that one-time jump in machinery imports, Statscan said, imports in September would have been down 1.6 per cent, and the trade deficit would have been $1.2-billion – the smallest since January.
Yet, even excluding the one-time distortion of the Hebron shipment, the September figures showed some cracks after the strong recovery in trade over the summer.
Export volumes – a key measure for exports’ contribution to Canadian economic growth – shrank 0.8 per cent in the month, after having surged 4.3 per cent over July and August. Meanwhile, the decline in imports, excluding the Hebron shipment, suggests weak demand for a wide range of both consumer and business goods in the month.
“The details continue to show a decline in non-commodity exports and a decline in imports of machinery and equipment, suggesting weakness in business investment,” Charles St-Arnaud, an economist and foreign-exchange strategist at Nomura Securities, said in a research note.
For the third quarter as a whole, exports rose 5 per cent, the strongest since the first quarter of 2014, reversing course after a 4.7-per-cent slump in the second quarter that raised concerns about the health of Canada’s export sector. Imports in the third quarter increased 2.4 per cent. The quarterly trade deficit totalled $8.2-billion, down from a record $11.1-billion in the second quarter, as Canada’s trade balance continues to struggle under the weight of weak commodity prices.
The improvement in exports and net trade in the quarter is expected to be a substantial contributor to Canada’s third-quarter growth in gross domestic product, which most economists expect exceeded a 3-per-cent annualized pace, a sharp turnaround from the 1.6-per-cent contraction in the second quarter.
Royal Bank of Canada senior economist Nathan Janzen said the deterioration in the trade balance in September suggests that trade’s third-quarter contribution to growth “will be smaller than the three-percentage-point support we were previously expecting.”
However, he noted that since the net trade erosion was the result of a large shipment of industrial machinery and equipment, we could see a bigger-than-expected contribution from business investment in the quarter.
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