Canadian Exports Dropped for a Second Straight Month

The Canadian trade surplus narrowed 20% in September to C$ 4.49 billion from an August figure that was revised down by 3%. A 1.0% drop in exports was spread across most sectors but concentrated most heavily in auto and energy shipments to the United States. Exports had also fallen in August. A 1.9% increase in imports was led by a 10.3% jump in energy and a 2.0% rise in automotive goods. Energy trade accounted for 53.5% of the incremental contraction of the overall trade surplus in September to an eight-month low. The surplus also fell in the third quarter relative to the second quarter. All other factors being the same, the current account surplus would be slated to drop by about C$ 2 bn in 3Q and equal around 1.2% of GDP. That was the same ratio as in the first quarter but would be down from a surplus of 1.7% of GDP in 2Q. The year-to-date trade surplus is running about 12% higher than through the first nine months of 2007, but the Canadian dollar presently shows a year-to-date decline of 19.6% against its U.S. counterpart and is 26.6% weaker than its peak of USD 0.9061 hit on November 7, 2007. Bank of Canada officials project a drag on real GDP growth amounting to 1.9 percentage points (ppts) this year, followed by 1.1 ppts in 2009 and 0.1 ppt in 2010. Substantially weaker commodity prices and recession in many of Canada’s markets will continue to weigh on exports even as the negative impact of previous C-dollar appreciation fades. Domestic demand will in the meantime make a greatly reduced contribution to economic activity next year, so that overall GDP grows no faster than the 0.6% rate penciled in for 2008.

Larry Greenberg
CurrencyThoughts