Canadian trade deficit widens in December, net trade likely to weigh on Q4 growth

Canada’s trade deficit broadened in the month of December. Deficit widened to CAD 3.2 billion from November’s CAD 2.7 billion. Imports grew 1.5 percent, outpacing export’s growth of 0.6 percent. In real terms, imports rose 1 percent while exports remained flat in December. Imports growth was fairly broad based; however, it was led by a 17 percent growth in energy products. Industrial machinery and equipment imports rose a strong 6 percent, whereas aircraft and other transportation equipment provided some offset, dropping 23 percent.

Exports grew for the third consecutive month, led by a recovery in energy products that rose 6.2 percent. Metal ores and non-metallic minerals also rose in the month, while exports of consumer goods and industrial machinery and equipment saw the largest declines.

Canada’s trade surplus with the U.S. broadened to CAD 3.4 billion in December, as imports dropped more than exports. The nation’s trade deficit with the remainder of the world broadened to CAD 6.6 billion as the 4.9 percent rise in exports trailed the 6.8 percent rise in imports.

Volumes of imports rose 1.2 percent for the whole of fourth quarter, while that of exports rose just 0.3 percent. According to a TD Economics research report, net trade is expected to weigh on the economic growth in the fourth quarter. Still the overall growth is likely to come in at around 2.2 percent in the fourth quarter.

“Going forward, stronger export demand – propped up by robust US growth and a still-low Canadian dollar (expected to hover around 80 US cents) should enable trade to contribute favourably to growth”, stated TD Economics.

While the other indicators have underpinned the economic growth, the Bank of Canada is expected to stay on the sidelines until the summer as it assesses the effects of shocks to the economy, including the implementation of updated B20 measures and provincial minimum wage hikes, added TD Economics.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral -34.8078, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 53.8937. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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