Canada’s merchandise trade balance unexpectedly widened to $4.6 billion in November, up from October’s downwardly revised $4.1 billion.

BMO Nesbitt Burns notes that imports dropped by 0.3% to $28.1 billion, the fifth straight monthly decline, as domestic demand cooled. But, exports posted their first gain since March, rising 1.3% to $32.7 billion despite sliding energy prices. Auto exports were boosted by the new model year and aircraft exports leapt for the second straight month.

The gain in exports was led by aircraft, telecommunication and automobile exports, Bank of Montreal reports. Also, sharp declines in energy prices led to a 12.3% drop in the value of energy exports. The decline in imports was spread across all categories except automotive and agriculture products. Stripping out price effects, exports rose a real 2.7% increase in November after a 0.5% gain in October, BMO says.

“All told, November’s export advance recouped only a tiny fraction of the ground lost during the previous seven months, during which exports suffered a cumulative decline of 12%,” says CIBC World Markets. “Nonetheless, with Canada’s trade surplus stabilizing in Q4, the rapid erosion in the current account that has characterized the past two quarters looks to be put on hold in the final quarter of 2001.”

CIBC notes that weak U.S demand was easily offset by double-digit export gains to the EU, Japan and other OECD” regions. “But don’t look for these gains to be sustained, with overseas economic prospects really no better than here at home.”

Separately, wholesale trade also managed to gain ground in November, although the 0.4% increase left year-over-year wholesale sales up just 2.2%, points out CIBC. “While wholesalers and retailers have made progress in trimming unwanted inventory, a sizeable overhang in the manufacturing sector will continue to weigh on production, and consequently growth, in the quarters ahead.”

“The stronger-than-expected performance in exports has led us to revise up our call on the contribution from the external sector to overall Q4 growth. Consequently, GDP is expected to fall a more modest 0.5% in Q4 at an annual rate, compared to our earlier forecast of -1.4%,” says BMO.

CIBC says that the improvement in real exports, strong wholesale numbers and retail sales increases the odds that a negative Q4 GDP reading can be avoided. “Having stanched the bleeding in the trade surplus, what had been a rapidly eroding current account balance should largely level off in Q4.”

BMO Nesbitt says the economic news is mildly positive for Canada. “The trade surplus remained surprisingly resilient through the fall, and exports managed to break out of their slide. However, good trade news has rarely provided a lasting benefit to the Canadian dollar in the past.”