- Marc-Antoine Dumont
Senior Economist
Economic News
Canada: The Trade Balance Tipped into Deficit in December
February 7, 2024
Highlights
- Canada’s international merchandise trade balance fell into negative territory in December, with a deficit of $0.3 billion—in line with our call—after a surplus of $1.1 billion in November.
- Exports fell for a second consecutive month in December, with a 1.9% m/m decline, while imports edged up 0.2%. In contrast, exports were up 0.2% in volume terms, whereas real imports advanced by a more robust 0.8% in the month.
- After a surplus of $19.7 billion in 2022—the largest since 2008—the trade balance turned into a deficit of $1.4 billion in 2023.
Comments
As expected, December trade data was a price story as the appreciation of the Canadian dollar (CAD) put downward pressure on export prices while increasing import prices. While counterintuitive, this happens as most transactions are made in US dollars and need to be converted into CAD. Therefore, the appreciation of the loonie results in lower nominal exports and higher imports.
Against this backdrop, 7 out of 11 export product categories fell in December, with motor vehicles and parts (-8.2%) and energy products (-3.1%) behind most of the monthly decline. That said, aircraft and other transportation equipment and parts (+12.3%) continued to post solid gains and grew for a third consecutive month. Lower oil prices and slower global industrial production should weigh on exports in the coming months. But the start of operations on two new pipelines this year, one for oil and one for natural gas, should support higher energy export volumes in the second half of 2024.
On the import side, consumer goods (+9.4%) are behind most of the increase. Excluding this category, imports were down 2.0% in December. The drag came from electronic and electrical equipment and parts (-5.7%), basic and industrial chemical, plastic and rubber products (-3.8%) and energy products (-9.9%). The weakness in the latter category was anticipated, as production outages in Canada forced suppliers to turn to the international market to fill the production gap in November.
Implications
Today’s trade data didn’t nudge our Q4 real GDP growth tracking much relative to our latest Economic and Financial Outlook External link. This link will open in a new window.. It remains around 0.5% (q/q annualized). That’s above the Bank of Canada’s 0% forecast in its most recent Monetary Policy Report, but below the Q4 print suggested by the monthly real GDP by industry numbers. And while positive overall, on a per capita basis it will be the sixth consecutive quarterly contraction in economic activity. Accordingly, it reinforces our view that the Bank of Canada is going to hold rates steady at its upcoming meeting and is likely to begin cutting rates by mid-2024.
