Canada Posts 4th-Largest Trade Gap as Europe Exports Drop

Canada posted the fourth highest trade deficit on record in November as shipments to Europe fell, suggesting the country’s economy is struggling to emerge from an export-driven slump.

Canada recorded a C$1.96 billion ($1.99 billion) trade deficit in November, up from a revised C$552 million gap in October, Statistics Canada said today in Ottawa. The shortfall was wider than all 21 forecasts in a Bloomberg survey of economists that had a median estimate of a C$600 million deficit. Exports to the European Union fell 19.4 percent, led by metals.

Growth in the world’s 11th largest economy slowed to a 0.6 percent annual pace in the third quarter as exports fell the fastest since the end of the 2009 recession, and today’s figures suggest the expansion didn’t accelerate much in the fourth- quarter, leading to what could be the worst six month performance since the 2009 recession.

“I’m pretty concerned about the ongoing weakness in exports,” said Sal Guatieri, senior economist at BMO Capital Market in Toronto. “It looks like trade could subtract from economic growth once again.”

Canada’s economy probably expanded at an annualized pace of 1.5 percent in the fourth quarter, according to Bloomberg’s monthly economist survey, compared with forecasts of 1.7 percent in the prior survey and 2.5 percent in the central bank’s October monetary policy report.

Reconsidering Forecasts

Economists have already begun to reconsider those forecasts. Guatieri said the trade data suggest the economy probably didn’t grow much faster than 1 percent in the fourth quarter.

IHS Global Insight, National Bank of Canada (NA), and Capital Economics issued reports predicting the growth rate may remain below 1 percent in the fourth quarter.

“At face value, this print is consistent with another disappointing quarter for the Canadian economy where international headwinds could end up slowing economic growth to a crawl,” said David Tulk, Chief Canada Macro Strategist at TD Securities Inc. in Toronto.

While the report marks the first deterioration of the trade balance in four months, rising imports suggest Canadian demand remains buoyant and is helping to mitigate the impact of weak exports. Swap rates show investors are placing 48 percent odds of the Bank of Canada will raise interest rates by the end of the year.

‘Underlying Strength’

The trade data “signals underlying strength in other areas of the economy,” Holt, Scotiabank’s vice-president of economics in Toronto, said in a note to investors.

Imports rose 2.7 percent to C$39.5 billion in November, led by motor vehicles and aircraft-related shipments.

The Canadian dollar weakened 0.1 percent to 98.43 cents per U.S. dollar at 11:40 a.m. in Toronto.

“Probably the market is comforted by the rebound in imports,” Guatieri said.

Exports fell 0.9 percent in November to C$37.5 billion, led by a drop in shipments of crops such as canola and precious metals. Energy exports fell 1.2 percent. The value of goods shipped to European Union countries fell to C$2.85 billion, or 7.6 percent of Canada’s total exports. That’s down from 9.3 percent a month earlier.

Eight of the 12 major export components tracked by Statistics Canada recorded year-over-year declines in November.

The volume of exports, which exclude price changes, increased 0.4 percent while import volumes increased 2.2 percent.

Canada’s trade surplus with the U.S. rose to C$3.34 billion in November from C$2.69 billion a month earlier as exports rose 3.9 percent.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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