Canada’s trade deficit widened to $3.2B in December (previously $2.7B), as the 1.5% rise in imports outpaced the 0.6% gain in exports. In real terms, imports were up 1% while exports were flat during the month.
The rise in imports was fairly widespread, but led by a 17% increase in energy products. Industrial machinery and equipment imports (+6%) also posted a solid gain, while aircraft and other transportation equipment (-23%) provided some offset.
Exports rose for a third straight month, led by a bounce back in energy products (+6.2%) which were restrained in November by pipeline disruptions. Metal ores and non-metallic minerals (+8%) were also up in December, while exports of consumer goods (-8%) and industrial machinery and equipment (-4%) recorded the largest declines.
Canada’s trade surplus with the US widened to $3.4B in December (previously $3.3B), as imports (-1.3%) fell more than exports (-0.8%). Canada’s trade deficit with the rest of the world widened to $6.6B (previously $6.0B) as the 4.9% increase in exports trailed the 6.8% gain in imports.
Key Implications
For the fourth quarter as a whole, import volumes were up 1.2% while export volumes edged up by a mere 0.3%. As such, net trade will be a drag on growth during the quarter. Still, overall growth in Q4 is on track to come in at a healthy pace of about 2.2%.
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. However, the NAFTA renegotiations pose some risk, with another round of talks set for February and March. Having said that, there is unlikely to be any impact on trade between the signatory countries in the near term.
The Bank of Canada will be disappointed by Canada’s trade performance at the end of 2017. While other indicators have been more supportive of growth, the Bank is likely to remain on the sidelines until the summer as it assesses the impacts of shocks to the economy, including the implementation of updated B20 measures and provincial minimum wage hikes.
