November exports, imports slowed

Canada’s merchandise trade deficit remained at historically elevated levels in November, as exports and imports slowed amid a weakening global recovery.

Exports of goods increased by just 0.5 per cent in November, after jumping 2.2 per cent in October and 1 per cent in September, Statistics Canada said Thursday. Imports fell for the first time since May, dropping 0.3 per cent in a sign of sluggish demand at home.

That leaves total trade stalled at about 98.5 per cent of pre- pandemic levels just as the nation’s economy entered what many economists warn may be another contraction in December and possibly the first three months of 2021. In addition to slowing global growth, exports have been hampered by a stronger Canadian dollar, with the loonie gaining more than 4 per cent against the U. S. dollar over the past three months.

“The Bank of Canada will be concerned with how much of a headwind the loonie’s appreciation is to the competitiveness of the country’s exports,” Royce Mendes, an economist at Canadian Imperial Bank of Commerce, said in a report to investors.

The trade deficit was $3.3 billion in November, from a revised $ 3.7 billion in October, Statistics Canada said. Economists had predicted a gap of $3.5 billion, according to the median of 11 forecasts in a Bloomberg survey.

“While the trade deficit narrowed, it remains notably wider than pre-pandemic levels,” said Benjamin Reitzes, Canadian Rates & Macro Strategist at BMO Capital Markets Economics, in a note.

Reitzes added that higher oil prices in December and into 2021 will likely help shrink the gap over the coming months.

There was little market reaction to the data, with the Canadian dollar trading down 0.3 per cent at 1.2715 to the greenback, or 78.65 U. S. cents, as the U. S. dollar gained against a basket of major currencies.

Canada is on track to post a record merchandise trade deficit in 2020, with the cumulative gap already at $ 33.4 billion in the first 11 months of the year. That’s largely because the collapse in exports earlier this year outpaced the drop in imports amid weakness in key sectors like oil. Imports, meanwhile, have recovered more quickly during the recovery.

The result is exports are still below pre-pandemic levels while imports have fully rebounded.

However, services trade, near balance for the first time on record, is fully offsetting the deterioration in Canada’s merchandise trade balance.

Until the pandemic, Canada had run massive deficits in services trade, largely due to foreign travel.