Canada Trade Deficit in October

By Promit Mukherjee

OTTAWA (Reuters) – Canada registered a larger-than-expected trade deficit in October, with its surplus with the U.S. falling to a yearly low, according to data released Thursday.

U.S. President-elect Donald Trump has frequently criticized the trade deficit between the U.S. and Canada, threatening last month to impose tariffs on Canadian exports.

The overall trade deficit narrowed to C$924 million ($657.60 million) in October, marking Canada's eighth consecutive monthly trade shortfall, as exports failed to surpass imports, despite a rise in exports for the first time since June.

Analysts surveyed by Reuters had projected a C$790 million deficit. September's trade balance was adjusted to a C$1.3 billion deficit from a previously reported C$1.26 billion.

Canada's trade surplus with the U.S., which accounts for over three-quarters of its total exports, dropped to C$6.17 billion in October, the lowest this year.

Monthly exports to the U.S. declined by 2.8% and by 8% year-on-year. In contrast, imports from the U.S. increased by 1.1% monthly and 1.9% yearly.

Trump has threatened to impose a 25% tariff on all imports from Canada, the U.S.' second-largest trading partner after Mexico, unless Canada addresses issues regarding drug and migrant flows into the U.S.

Such tariff threats create uncertainty regarding the forecast for Canada's GDP next year. Shelly Kaushik, an economist at BMO Capital Markets, noted that the outlook for 2025 is unclear due to trade and tariff uncertainties. However, she indicated that the overall trade numbers for October had a largely neutral effect on fourth-quarter growth.

Previous data indicated that the Canadian economy underperformed relative to the central bank's forecast for third-quarter growth and likely began the fourth quarter with modest growth in October.

The Bank of Canada reduced borrowing costs by 125 basis points since June to 3.75%. While inflation has eased to its target of 2%, concerns regarding slowing economic growth have emerged.

Following the data release, the Canadian dollar strengthened, trading up 0.36% at 1.4024 against the U.S. dollar (or 71.31 U.S. cents). Yields on two-year government bonds increased by 4.4 basis points to 3.129%.

Predictions for a 50 basis point rate cut have diminished, with the currency market now estimating a little over a 35% chance of a larger rate cut on December 11, while a 25 basis point reduction in the interest rate is fully anticipated.

Overall, total exports rose by 1.1% in October, while imports increased by 0.5%, according to Statscan.

($1 = 1.4051 Canadian dollars)