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Merchandise Trade Analysis - October 2017

Widespread gains drive exports higher for the first time since May

October saw the end of a four-month-long losing streak for Canadian exporters as foreign sales rebounded to their highest level since June. Total exports reached $44.5 billion in October, up 2.7 per cent from a revised $43.3 billion the previous month. In spite of the increase, however, exports remain 8.3 per cent below their $48.5 billion peak in May.

Meanwhile, a sharp decline in purchases of foreign motor vehicles and parts drove imports down 1.6 per cent to $45.9 billion in October. Imports and exports have followed more or less the same path throughout much of the year - strong growth in the first five months of the year, followed by weakness thereafter. In fact, October's trade numbers mark the first significant divergence between growth in imports and exports since February.

As a result of the rise in exports and decline in imports, Canada's trade balance improved dramatically in October. The trade deficit fell from a revised $3.4 billion in September to just below $1.5 billion - its lowest level since May.

The increase in exports in October was the result of a combination of higher trade volumes and Canadian businesses receiving better prices for their goods. Export prices rose by 2.1 per cent in October, with gains in nearly every major product category. The total volume of goods exports increased by about 1.3 per cent, with gains in agriculture, intermediate food products, petroleum, basic chemicals, industrial machinery and large motor vehicles. Exports volumes were lower for producers of forest products, crude oil, pharmaceuticals, and aerospace.

On the import side, Canadians paid more to buy foreign goods, but they purchased fewer of them; import prices also rose by 2.1 per cent, but volumes dropped significantly - by 3.9 per cent compared to September. Import volumes were notably lower for natural gas, raw metals and passenger vehicles.

The combination of higher prices and volumes meant that there were export gains virtually across the board in October. Exports were up in nine of the eleven main product categories, with the largest increases in refined petroleum, petrochemicals, and intermediate metal products. The only two export product groups to see exports decline in October were aerospace vehicles and parts, and raw metals and minerals.

Looking at major destinations, the increase in exports was almost entirely driven by the United States. Exports to the US had been in freefall since May, dropping by 11.5 per cent in just four months. That trend came to an end with a $1.3 billion jump in October - an increase of about 4.1 per cent.

In fact, while Canada did make export gains in some other countries - Mexico, the Netherlands, and Switzerland stand out - all told, exports to non-US destinations fell by about $200 million. In particular, exports to the UK fell considerably in October (by $231 million), while sales to China (down $152 million), Indonesia (down $98 million), and Brazil (down $91 million) were lower as well.

As noted above, the decline in imports in October was driven by fewer purchases of foreign cars and auto parts. Imports of those goods fell by 8.1 per cent ($770 million), compared to a drop in total imports of $735 million. Imports of raw metals and minerals were also lower - by about $248 million - offsetting a similar-sized increase in deliveries of aerospace vehicles and parts to Canada. There was little significant change in imports in any other major product category.

Looking at import sources, Canadians bought fewer goods from Japan (-$312 million), the United States (-$188 million) and Mexico (-$186 million) in October. However, imports from Switzerland ($131 million) and Norway ($103 million) were significantly higher.

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