October trade deficit is smallest since January

The country's trade deficit narrowed to $1.1 billion in October, the smallest shortfall since January, after hitting a record high of $4.4 billion the previous month due to the import of a key component for a Newfoundland offshore oil project, Statistics Canada said Tuesday.

The result topped expectations of a deficit of $2 billion for the month, according to Thomson Reuters.

The improvement came as imports fell 6.3 per cent to $44.7 billion in October after hitting a record high in September due to the import of a module from South Korea for the Hebron offshore oil development.

• Canadian trade deficit hits record $4.1B in September

Import volumes fell 6.2 per cent and prices edged down 0.1 per cent. Exports increased 0.5 per cent to $43.6 billion as prices rose by 1.2 per cent and volumes declined 0.7 per cent.

CIBC economist Nick Exarhos said after you strip out "some of the noise in the report" the data wasn't particularly constructive for the Canadian outlook.

"Export volumes continue to track year-on-year declines, while imports — a barometer for internal demand — remain anemic," he wrote in a research note to clients.

Benjamin Reitzes, senior economist at BMO Capital Markets, said the struggling exports suggest the Canadian dollar needs to weaken further.

"That could make the Bank of Canada a bit more uncomfortable with the recent bounce in the loonie," Reitzes said in a commentary.

"While the [Bank of Canada] will almost certainly keep policy rates steady at tomorrow's meeting, the persistent softness in non-energy export volumes and somewhat buoyant [Canadian dollar] could prompt a bit of a dovish tone in the policy statement," he said.

Statistics Canada said higher exports of energy products and motor vehicles and parts were partially offset by lower exports of consumer goods and aircraft and other transportation equipment and parts.

Exports of energy products increased 5.5 per cent to $6.5 billion in October, while exports of motor vehicles and parts climbed 3.2 per cent to $8.0 billion.

Exports of consumer goods fell 3.2 per cent to $6.0 billion. Aircraft and other transportation equipment and parts dropped 4.5 per cent to $1.9 billion.

TD Bank senior economist James Marple said the decline in export volumes is disappointing.

"With pressure on the housing market as a source of domestic growth and little traction on exports, the overall economy will continue to struggle," Marple wrote in a report.

"With this backdrop in place, interest rates will remain at current levels and pressure will remain on fiscal and monetary authorities to support economic growth."

Exports to the United States increased 1.6 per cent to $32.8 billion in October, helped by crude oil and crude bitumen, while imports from the U.S. fell 0.1 per cent to $29.7 billion to leave Canada's trade surplus with the United States at $3.0 billion in October.

Canada's trade deficit with countries other than the U.S. fell to $4.1 billion in October compared with $6.8 billion in September