Canada posted a record $4.6 billion trade deficit in December, up from a downwardly revised $1.98 billion deficit in November (previously reported as $2.1 billion). This was significantly higher than consensus estimates for a $2.1 billion deficit. Exports fell 3.8% (m/m) to $46.3 billion, driven by weaker nominal energy exports. Imports were up 1.6% to $50.9 billion, driven by imports of refined petroleum energy products.
After accounting for price changes, the picture was still somewhat disappointing. Export volumes fell 1.4%, whereas import volumes were up 1.1%.
Consistent with a drop in global and Canadian oil price benchmarks during the fall, the decline in exports was once more an energy price story. Excluding energy products, exports were almost flat on the month. Exports of energy products fell 21.7% in value, with most of the drop driven by declines in crude oil and bitumen exports (- 28.7%). Exports of metal and non-metallic mineral products were also down a significant 9.8% (attributed to lower transfers of gold in December). Providing some partial offset to these drops was a surge in exports of aircraft and other transportation equipment, up 16% on the month.
Imports increased 1.6% in December, driven by energy (+19.7%), metal ores and non-metallic minerals (+32.8%), and motor vehicles and parts (+4%). Statistics Canada attributes the surge in energy imports (mostly refined petroleum products) to temporary maintenance at some Canadian refineries. Imports of machinery were up a modest, but still encouraging 0.8%.
Canada’s merchandise trade surplus with the U.S. narrowed to $1.8 billion in December. Its merchandise trade deficit with the rest of the world widened to $6.4 billion.
Key Implications
The deficit widening came in significantly higher than expected, although the energy price story was mostly penciled in. Looking beneath the headline numbers, the broad-based weakness in exports, and the negative volumes print is discouraging. Nevertheless, the increase in imports, especially of interest-sensitive categories (motor vehicles and parts) is somewhat positive, given the otherwise dampened consumer spending outlook. The uptick in machinery and equipment imports, which was also one of the better performing import categories on the year, is also encouraging.
The release doesn’t change much given the disappointing Q4 GDP has already been factored in. Our GDP tracking for Q1 remains unchanged at just 0.1%.
