Canada's trade surplus narrows

Canada's trade surplus narrowed less than expected in September and the rise in housing prices slowed, signs the economy may be coping reasonably well with the impact of the US slowdown and inflationary pressures.
The trade surplus fell 5.3 percent in September from August to C$3.97 billion ($3.51 billion) as tumbling energy prices lowered export values for the first time in five months, Statistics Canada said on Thursday.
Exports dropped 2 percent to a smaller-than-expected C$37.88 billion. That was largely because of a 4 percent decline in shipments to Canada's top market, the United States, after sales of energy products and automotive parts fell. Much of the decline was due to price declines so the drop was much milder in terms of volumes.
The 1.6 percent drop in imports helped keep the trade balance from falling further, averting for now the bleaker scenario envisioned by economists who fear the strong Canadian dollar combined with weaker US demand, would bite deeply into Canada's trade position in the second half of this year.
Stewart Hall, market strategist at HSBC, said in a note to clients that the negative reading of the trade report was "exaggerated by changes in the pricing regime."
Paul Ferley, assistant chief economist at the Bank of Montreal, also preferred to see the glass as half-full: "There may be some cautious optimism that the (trade) deterioration was fairly minor," he said.
Ferley said the figures were unlikely to sway the Bank of Canada from its neutral bias on interest rates. He expected the bank to hold its leading rate at 4.25 percent before starting a rate-cutting cycle early next year. "I think today's report is generally consistent with our view that the (central) bank is going to remain on the sidelines," said Ferley.
Analysts surveyed by Reuters had expected a bigger drop in the surplus to C$3.50 billion. But both exports and imports fell more than expected. Statscan revised the August surplus to C$4.19 billion from C$4.20 billion previously.
Canada's trade surplus with the United States fell to C$7.30 billion in September from C$8.09 billion in August, continuing a downward trend, while its deficit with the rest of the world shrank. Imports from China, Canada's second-largest source of imports, rose 17.2 percent in January-September versus the same period last year, while exports to China declined slightly.
A second Statscan report showed new housing prices rose steeply in the year to September, but the month-on-month rise was slower than in previous months. Prices were up 0.5 percent in September from August, compared with a 1.5 percent gain in August and the 12-month price growth eased to 11.9 percent from 12.1 percent.
The Bank of Canada has named high housing prices as a key risk to its inflation target, which aims to keep inflation at the midpoint of a 1 percent to 3 percent range.
"The conflicting forces at play in the Canadian economy are neatly packaged into these two reports - slumping net exports and rip-roaring home prices - although both seem to be losing a trace of force at this point," said Doug Porter, deputy chief economist at BMO Capital Markets in a research report.