- The December surplus was down slightly from the upwardly revised November surplus of $1.0B and was stronger than the +$0.2B expected within financial markets going into the report.
- December saw exports rising 0.8% though it was more than offset by a 1.0% gain in imports.
The increase in exports was largely the result of energy exports soaring 15.9% in the month. Excluding the energy component, exports were down 2.1%. Within energy all of the increase reflected energy prices rising 16.5% with the volume of energy exports dropping, albeit marginally, by 0.6%. The strength in imports was more broadly based. Encouragingly imports of industrial machinery and equipment were up a very strong 6.4% in the month which provides some tentative optimism of strengthening in business investment. Significant import increases also occurred in the volatile aircraft component (21.8%) and metal and non-metallic mineral products (6.3%). Energy imports provided a surprising offset dropping 11.9% in the month. Import energy prices rose in the month though by a more modest 3.4% relative energy export prices.
Eliminating the impact of price changes the December trade picture was not quite as encouraging. A 1.6% rise in import volumes and a 1.0% decline in real exports both contributed to the real trade surplus dropping to $3.1B (on chained 2007 dollars) from $4.1B in November.
Our Take:
Despite the deterioration in the real trade balance for December, today’s report is still indicative of a significant improvement in net trade for the fourth quarter. Though this resulted mainly from imports volumes dropping a marked 15.5% on an annualized basis, a 3.0% rise in exports also made a contribution. This improvement suggests that net exports will add around 4.5 percentage points to annualized Q4 GDP growth. This improvement along with expected solid increases in key expenditure areas such as the 2.5% gain in consumer spending will more than offset an anticipated sizeable drawdown in inventories and keep overall Q4 GDP growth at an above-potential rate of 1.8%. Our forecast assumes this rate of growth will continue through this year supported by broad-based gains among most of the major expenditure areas. This is expected to eventually prompt a tightening by the Bank of Canada though not until next year with the overnight rate holding steady at the current 0.50% in the interim. A key risk to this outlook is the possibility of increased trade protectionism by the U.S. Such would have a dampening impact on exports though business investment would also see some downward pressure.
