- The December trade deficit narrowed to $0.4 billion from $1.2 billion in November
- Bounce-back in energy shipments pushed exports up 1.9%
- Imports were little changed in December – but down sharply in Q4 as a whole.
The bulk of the 1.9% increase in exports in December came from a bounce-back in energy shipments after disruptions to a major pipeline reduced exports in November. Excluding energy products, export volumes (i.e. excluding price changes) were little changed, by our count, in December but were still up less than a percent from a year ago and declined about 3% at an annualized rate in Q4 as a whole. A major rail strike in November also probably weighed on Q4 exports – as did disruptions to auto production tied to an autoworker strike in the US. But underlying trends still look lackluster. Downside go-forward external demand risks eased earlier this year with the signing of the US-China ‘phase 1’ trade deal, although disruptions from the new coronavirus outbreak represent a new external risk.
But concern in Canada has been shifting from external to domestic growth worries. And imports were also soft in Q4, with volumes down almost 5% on an annualized basis in the quarter as a whole. The November rail strike and disruptions to auto production also probably also reduced imports, and lower imports mean the drag on GDP growth from net trade in late last year was smaller than we were previously assuming. But the pullback is still not a good sign for near-term domestic demand growth. Equipment imports in particular, an important indicator of Canadian business investment, fell for a fifth straight quarter in Q4, and declined almost 3% excluding price-effects in December. All in, the December trade numbers shouldn’t do much to allay concerns at the Bank of Canada that domestic growth trends are slowing.
