MNI DATA ANALYSIS:Canada Trade Gap Widens As Oil Drags Exprts>

By Yali N'Diaye

     OTTAWA (MNI) - Canada's merchandise trade deficit widened to C$1.2 

billion in October, as exports, dragged by energy, decreased faster than 

imports, data released Thursday by Statistics Canada showed. 

     Analysts in a MNI survey had expected a deficit of C$0.9 billion. 

October's headline number was especially disappointing given that the 

gap for September was revised to C$0.9 billion from C$0.4 billion. 

     Overall exports contracted 1.2% on the month, twice as fast as 

imports, which were down 0.6%. 

     However, details of the report showed it was not as weak as the 

headline figure suggested. 

     - OIL DRAGS EXPORTS 

     The drop in oil prices largely explained the poor export 

performance. 

     When looking at volumes alone, exports actually increased 1.2% 

after contracting 0.4% in September, while prices fell 2.3%, led by the 

energy sector. 

     On a sector basis, 7 of 11 sections recorded higher exports, 

showing that the weakness was concentrated in 4 sections, notably 

energy. 

     Energy exports fell 12.4% in October after declining 2.0% in 

September. Non-energy exports rose 1.6%. 

     Reflecting the large price effect, real energy exports decreased 

just 1.6%, offsetting the 1.6% gain the previous month. Crude oil 

exports dropped 16.2% on the month, with prices down 15.4%, the largest 

drop since February 2016. In volume terms, crude oil exports were down 

0.9%. 

     Real exports excluding energy rose 2.1% on the month after falling 

1.0% in September. 

     Weakness in crude oil exports also explained the 2.3% decrease in 

exports to the U.S., the third decline in a row. With imports up 1.3%, 

the trade surplus with the U.S. narrowed to C$3.1 billion, the smallest 

since last March. 

     Instead, the trade deficit with non-US countries improved to C$4.2 

billion from C$5.2 billion, as exports rose 2.3% and imports fell 4.1%. 

This was the smallest deficit since December 2016. 

     The Bank of Canada, which held the key policy rate unchanged at 

1.75% Wednesday as it warned about the weaker energy sector weighing on 

the growth outlook, expects non-energy business investment to improve 

productive capacity, and in turn support exports along with  "strong 

foreign demand." 

     - IMPORTS FALL ON AUTOS 

     On the imports front, the price effect was also the story, given 

that nominal imports decreased 0.6% while real imports were flat. 

     On the bright side, industrial machinery, equipment and parts 

imports rose 1.5% on a 1.6% gain in volumes, a positive sign for 

business investment activity in Canada. 

     Overall, 7 of 11 import sections decreased, led by a 3.5% drop in 

imports of motor vehicles and parts. 

     Consumer goods imports fell 1.1%, entirely on lower volumes, 

following a 3.7% gain in September. 

--MNI Ottawa Bureau; email: yali.ndiaye@marketnews.com 

[TOPICS: M$C$$$,MACDS$]