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TD Economics
Commentary
January 13, 2009

TUMBLING COMMODITY PRICES TAKE DOWN

CANADA’S TRADE BALANCE
• Canada’s trade balance narrowed to $1.3 billion CANADIAN INTERNATIONAL MERCHANDISE TRADE
• Exports fell the most since 2003, owing to a 15% November-08
decline in energy prices M/M Y/Y
C$, Blns. % Chg. % Chg.
The Canadian trade surplus narrowed in November to
TRADE BALANCE (C$, blns)* 1.28 -- --
a shocking $1.3 billion, the lowest trade balance in over VOLUME OF EXPORTS -- -2.8 -9.6
eleven years. While November’s numbers came in well VOLUME OF IMPORTS -- -4.5 -8.6
below expectations, the bigger surprise was a large down- VALUE OF EXPORTS 39.2 -6.8 3.1
ward revision of October’s trade balance to $2.3 billion, Energy Products -- -19.3 4.5
Industrial Goods & Materials -- -7.4 4.9
from a previously reported $3.8 billion. Statistics Canada Machinery & Equipment -- 1.4 9.5
reported added information on energy prices and exports Automotive Products -- -0.5 -21.1
as the main source of the revision, which brought Octo- VALUE OF IMPORTS 38.0 -4.8 11.1
ber’s trade balance in line with what we were originally Energy Products -- -36.5 13.3
Industrial Goods & Materials -- -2.5 14.4
expecting last month. Stepping back into November, the
Machinery & Equipment -- 2.7 18.9
trade balance fell as the decline in exports (6.8%) out- Automotive Products -- -4.5 -12.4
stripped that in imports (4.8%). Falling energy prices pushed *Previous month revised trade balance level
exports down 4.1%, but even stripping out these price ef- Source: Statistics Canada/Haver Analytics
fects, the volume of exports fell an additional 2.8%.
Performance of the Canadian export sector has been
The energy sector played a major role, for both imports
dismal since the beginning of the U.S. recession, yet was
and exports. Energy exports fell a sharp 19% led by a
not as weak as one would expect given what was going on
22.8% decline in coal and petroleum, while imports of en-
the international front. This is because in mid- 2008, we
ergy products fell 36.5%, the largest decline in over 20
had seen some signs of hope as the quick deterioration of
years. This was largely due to falling prices as energy
the Canadian dollar briefly supported demand for exports.
export prices fell 15%, and energy import prices fell 13%.
However, now as the global economy heads into what can
Excluding energy, exports were down a more tempered
possibly be the worst postwar global recession on record,
2.7%, and imports were actually up 0.6%. However, there
falling demand and prices could set the export sector up
were declines in almost all major categories and each of
for the worst performance on record. November’s data
the ex-energy categories may be weaker than they ap-
puts some downside risk to our estimated 5.5% decline in
pear. Machinery and equipment exports were up 1.4%,
real exports in the fourth quarter, suggesting that the ex-
fully owing to an 11.9% increase in aircraft exports, and
port sector could be more of a drag on GDP growth then
imports were up 2.8%. If we go back to manufacturing
previously expected. Moreover, the quick deterioration in
shipments data in October, unfilled orders of these prod-
Canada’s terms of trade sets the stage for a 3.2% decline
ucts were quit large, suggesting the strength in exports is
in national income in 2009, which will be the first time nomi-
likely the fulfillment of older supply contracts, and this trend
nal GDP has contracted on an annual basis.
is unlikely to continue moving forward.
Diana Petramala, Economist
For further information, contact Beata Caranci at 416-982-8067.

TD Economics Commentary January 13, 2009

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TD Economics Commentary January 13, 2009