Canada's trade gap narrows to $1.7B with help of weak dollar

Canada's merchandise trade deficit narrowed to $1.7 billion in September, in a sign that the low Canadian dollar may be improving the trade balance.

That compares to a deficit of  $2.7 billion in August, Statistics Canada reported Wednesday.

The improvement in September came from exports increasing by 0.7 per cent by volume to total $44.5 billion and imports decreasing in volume by 2.1 per cent to $46.2 billion.

Royal Bank economist Paul Ferley says the weak Canadian dollar contributed to both declining imports and strengthening exports in the third quarter.

"Today's report indicated that export volumes in the third quarter of 2015 are up a very strong 11.1 per cent [annualized rate], benefitting from the robust gains in earlier months. In contrast, imports fell by 3.1 per cent in the quarter," he said in a note to clients.

Economists have been waiting for a lower dollar to have the desired effect of boosting exports and that may finally be happening.

Ferley estimates exports will add three percentage points to third-quarter annualized GDP growth.

Exports are up

Exports of consumer goods increased 4.6 per cent to $6.2 billion on higher volumes with increases in exports of pharmaceutical and medicinal products up sharply.

Exports of energy products increased 3.7 per cent to $7 billion in September with sales of crude and crude bitumen up 2.7 per cent to $4.6 billion.

Regionally, Canada's trade surplus with the United States edged up to $3.17 billion in September from $3.15 billion in August as imports fell 0.4 per cent and exports declined 0.3 per cent.

Canada's trade deficit with countries other than the United States was $4.9 billion in September compared with $5.8 billion in August.

The U.S. trade deficit narrowed to $40.8 billion US in September, compared to $48 billion in August. It was the smallest deficit since February of this year and results from a 1.6 per cent increase in exports led by consumer goods and autos.