Canadian trade picture shows some signs of brightening after difficult summer

OTTAWA – A surge in energy exports led Canada to one of the best trade performances in recent months in September, sharply closing the deficit with the rest of the world to $435 million from $1.1 billion the previous month.

That was a better than expected result in what has been the Achilles heel of Canada’s economic story over the past year, but analysts cautioned the results still fell short of signalling a sustainable turnaround in the key sector.

For one, most of the export gains continued to be concentrated in the energy sector — which rose 4.6 per cent —and domestic oil prices have slipped in recent weeks. Meanwhile, non-energy exports were up a modest 0.9 per cent and motor vehicle exports, another important industry, rose only slightly.

As well, the trade deficit for the just completed third quarter is now known to have averaged about $920 million a month, which should detract between one and 1.5 points from the country’s economic growth during the three-month period. Economists are still predicting a healthy 2.5 to 2.8 per cent advance in the quarter, however, mostly on domestic activity, particularly housing.

Overall, exports rose 1.8 per cent to $40.6 billion as the aircraft industry also enjoyed a good month — and imports inched up on 0.2 per cent to $41.1 billion.

“Good news with a twist of lemon,” said Doug Porter, chief economist with BMO Capital Markets, who worried that Canada is relying too heavily on oil and gas exports.

Markets weren’t overly impressed. They sold the Canadian dollar down 0.38 of a cent to 95.2 cents US in early morning trading.

Bank of Canada Governor Stephen Poloz has pinned his projections for a return to what he terms “natural growth” that is self-generating and self-sustaining on the long-awaited rebound in the exports sector. But more than four years into the recovery, it remains about seven per cent below pre-slump peaks.

The September result is a tiny step in the right direction, particularly as it comes on the heels of a disastrous summer for exporters.

There was also good news related to exports with the U.S., Canada’s largest and still most reliable market, increasing 1.0 per cent to $30.5 billion, while imports rose 0.9 per cent to $26.2 billion. That pushed the trade surplus with the Canadian neighbour to $4.3 billion from $4.2 billion in August.

There was also an improvement in the trade balance with the European Union, which has recently signed a free trade agreement in principle with Canada, although the deficit with the 28-nation block remains yawning.

Overall, exports to countries other than the United States rose 4.2 per cent to $10.1 billion and imports declined 1.1 per cent to $14.8 billion, narrowing the trade deficit with those countries to $4.7 billion in September from $5.3 billion in August.

In other economic news, the Conference Board said its latest reading of Canadian businesses found confidence largely unchanged in the third quarter of 2013 from the second, although three in 10 firms expected conditions to improve over the next six months.