2-6-18 9:55 AM EST | Email Article
By Paul Vieira 

OTTAWA -- Canada's trade deficit widened in December as imports climbed to a record level and export growth slowed markedly despite a solid gain in energy sales abroad.

Canada's merchandise trade deficit in December increased from the previous month to a seasonally adjusted 3.19 billion Canadian dollars ($2.55 billion), or the seventh-largest on record, Statistics Canada said Tuesday. The deficit was well above the market consensus of a C$2.25 billion shortfall, according to economists at Royal Bank of Canada.

The trade deficit for November was revised higher, to C$2.71 billion from the original C$2.54 billion estimate.

Imports rose 1.5% in December to a record C$49.70 billion, led by energy products and industrial machinery. Exports rose 0.6% to C$46.51 billion, also led by energy, following a 3.6% advance in the previous month. Excluding energy products, Canadian exports fell 0.6%.

On a price-adjusted, or volume, basis, imports increased 1%, while exports were "essentially unchanged," the data agency said.

Overall, exports rebounded in the fourth quarter, up 4.6% to C$137.41 billion, after a 7.6% decline in the third quarter, while imports increased 3.1% to C$144.71 billion. On a volume basis, fourth-quarter exports climbed by a milder 0.3% and imports jumped 1.2%.

"The Bank of Canada will be disappointed by Canada's trade performance at the end of 2017," said Dina Ignjatovic, economist at TD Bank, adding the data indicate net trade will be a drag on economic growth in the fourth quarter.

Ms. Ignjatovic said while other indicators have been more supportive of growth, "the Bank of Canada is likely to remain on the sidelines until the summer as it assesses the impacts of shocks to the economy," such as changes to mortgage-financing rules and sizable increases in minimum wages in certain regions of the country.

Canada's monthly trade report covers the purchase and sale of goods and, unlike the U.S. data, doesn't incorporate services

Also on Tuesday, the U.S. Commerce Department released its monthly trade report, and indicated the U.S. posted its largest trade deficit in nine years in December. The foreign-trade gap in goods and services expanded 5.3% from the prior month to a seasonally adjusted $53.1 billion.

The Canadian trade report marks the first major piece of economic data for December, or the final month of the fourth quarter. The results suggest a soft beginning for December on the economic data front, after Canada's gross domestic product rebounded strongly in November, led by the factory sector.

The Bank of Canada forecast 2.5% annualized growth in the fourth quarter. Before the trade report, economists said growth would likely fall short of the central bank's forecast.

The Canadian central bank raised its benchmark rate in January, the third in seven months, on underlying strength. Bank of Canada Gov. Stephen Poloz, however, has warned the possible dissolution of the North American Free Trade Agreement -- currently being renegotiated to address Trump administration demands -- remains the top risk for the Canadian economy, and is already acting as a drag on investment and export growth.

The trade report indicated Canadian exports to the U.S. declined 0.8%. Further, Canadian imports of U.S. goods also fell, 1.3%. Canada ran a C$3.42 billion trade surplus in goods with the U.S. in December, while recording a C$6.61 billion deficit with the rest of the world.

Over all, the gain in imports was powered by the purchase of energy products, up 16.9% to C$3.01 billion. While Canada is a net exporter of crude oil, the country does import crude, with the bulk of it arriving via the Atlantic.

Imports were also boosted by purchases of industrial machinery and equipment, up 6.3% to C$5.02 billion. The data agency attributed the jump in machinery imports to companies acquiring mining and construction machinery before a new federal-government regulation kicked in on Jan. 1 that introduced new emission standards affecting diesel engines.

As for exports, total sales abroad climbed even though six of the 11 components tracked posted declines in December. Exports of energy products climbed 6.2% to C$8.46 billion, reaching the highest level since November, 2014, or before the swoon in commodity prices began to accelerate.

Write to Paul Vieira at paul.vieira@wsj.com

 

(END) Dow Jones Newswires

February 06, 2018 09:55 ET (14:55 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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