OTTAWA – Canada’s trade deficit widened to $1.7 billion in December, worse than expected, as growth in imports outpaced export growth.
The rise in the deficit came as Statistics Canada also revised the November trade deficit Thursday to $1.5 billion compared with an initial estimate of $940 million.
Economists had expected the December trade deficit to come in at about $700 million, according to estimates compiled by Thomson Reuters.
“No doubt about it, the fourth quarter was a setback for Canada’s export sector, with trade expected to weigh on economic growth,” TD economist Leslie Preston wrote in a report.
“However, Canada’s trade performance in the fourth quarter is inconsistent with both renewed economic momentum in the U.S. economy, and with indicators of production in Canada’s economy.”
Preston suggested the fourth quarter should prove a temporary setback with exports expected to be a key growth driver this year as stronger U.S. demand lifts exports.
Statistics Canada said Thursday merchandise imports grew 1.2 per cent to $41.4 billion with higher imports of energy products leading the way.
Meanwhile, exports increased 0.9 per cent in December to $39.7 billion as increases in most sectors were slightly offset by declines in energy products, farm, fishing and intermediate food products and motor vehicles and parts.
Exports to the United States rose 1.2 per cent to $30 billion, while imports declined 0.4 per cent to $27.1 billion. Canada’s trade surplus with the U.S. rose to $2.9 billion from $2.4 billion in November.
Imports from countries other than the United States rose 4.3 per cent to $14.2 billion while exports to those countries were unchanged at $9.7 billion. The trade deficit with countries other than the U.S. totalled $4.5 billion in December, up from $4 billion in November.
Policy-makers and economists have been watching Canada’s trade numbers with earnest in recent months as they look for signs of export-led growth in the economy.
“The surprisingly large increase in December’s trade deficit provides further evidence supporting our view that Canada’s economy isn’t benefiting fully from the steadily improving US economy,” said economist David Madani of Capital Economics.
However Preston noted net exports are on track to contribute to growth in 2013, for the first time since 2001.
“The transition to more export-led growth is underway, but it has not been smooth. Therefore, the (central) bank is likely to wait quite some time before removing further monetary stimulus,” she said.
In its latest monetary policy report, the Bank of Canada noted last month there have been few signs of the anticipated rebalancing of the economy towards exports and business investment.
“That said, the U.S. recovery is becoming more broad-based, including higher investment spending by companies, and that, as well as the recent depreciation of the Canadian dollar, should help to boost exports. This, in turn, should lead to stronger business confidence and investment here in Canada,” governor Stephen Poloz said.
Note to readers: This is a corrected story. An earlier version incorrectly stated Statistics Canada’s initial estimate of the November trade deficit.