Loonie’s dive narrows Canada’s trade balance

OTTAWA — The rapid fall of the Canuck buck in relation to the U.S. dollar played the largest role in a significant drop in Canada’s international merchandise trade in October 2008.

According to Stats Canada, the loonie’s recent drop in value –combined with a sharp fall in energy, food and industrial material commodity prices on world markets (a drop of 16.5 percent according to the Bank of Canada’s US dollar index of commodity prices) — was the largest such decrease in a single month in recorded history.

As a result, Canada’s international merchandise trade balance with the world narrowed to $3.8 billion from $4.3 billion in September. This marked the second consecutive monthly contraction as imports grew more than exports.

The immediate effect of the currency depreciation on imports was to increase substantially the price of imported goods from the United States, reports Statscan.

For exports, given the dominant role of commodities such as petroleum and gas, metals and minerals and grains — which tend to be priced in US dollars — the price increase was much less. Overall, import and export prices rose 8 percent and 4.2 percent respectively in October.

The growth in imports from the United States surpassed the growth in exports by over $900 million in October. Consequently, Canada’s trade surplus with the United States continued to narrow for the fourth month in a row, totalling $7.3 billion.

Import Prices Rise in Most Sectors:

Strong imports of crude petroleum led the gain in imports of energy products, which increased 22.3 percent to $5.7 billion.
Machinery and equipment imports were up 3.2 percent, the 8th increase in 11 months.

Meanwhile, imports of automotive products dropped 1.7 percent to $6.1 billion as a result of declining volumes as prices rose.

Gain in Exports:

Exports of machinery and equipment increased 5.7 percent to $8.3 billion as prices rose for the fifth straight month.

Exports of agricultural and fishing products rose 6.1 percent to $3.6 billion as both prices and volumes increased.

Naturally, though, Canada’s exports of automotive products fell 2.4 percent to $4.9 billion, due to a large decline in volume, prolonging the downward trend that began in January 2007.

During this period of decline, the monthly value of automotive exports has fallen nearly 37 percent, notes Statscan.