Canada’s Trade Deficit Grows for Third Month in December

Canada’s merchandise trade deficit widened for a third month in December, exceeding all economist forecasts, as imports led by energy reached a record high.

The deficit of C$1.66 billion ($1.50 billion) followed a November shortfall that was revised to C$1.53 billion from C$940 million, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg forecast a C$650 million deficit in December, based on the median of 18 forecasts.

Imports rose 1.2 percent to a record C$41.4 billion as energy shipments jumped 22.6 percent to C$3.95 billion, Statistics Canada said. Exports rose 0.9 percent to C$39.7 billion, as a 4.5 percent decline in energy was offset by gains that included a 19.5 percent rise in metal ores.

Canada’s dollar fell to four-year lows last month after the country’s central bank suggested it may cut its 1 percent policy interest rate because of weak exports and inflation. Bank of Canada Governor Stephen Poloz said an expected surge in foreign demand and business investment hasn’t materialized.

“There was no momentum for net exports at the end of 2013,” said Robert Kavcic, a Bank of Montreal senior economist by phone from Toronto. Canada can expect “really strong support for exports as you look out over the next two years” from a weaker currency and faster U.S. economic growth, he said, adding that response “just doesn’t happen overnight.”

Canada’s dollar fell 0.2 percent to C$1.1101 at 9:35 a.m. Toronto time. Government bond yields rose, with the security due in 10 years gaining to 2.42 percent from 2.39 percent, the third straight increase.

Dollar Strength

The Bank of Canada kept its main interest rate unchanged Jan. 22 and said the strength of the country’s dollar is hurting non-commodity exporters. The central bank also said exports will contribute 1.2 percentage points to Canada’s economic growth this year, up from an October forecast of 1 percentage point and four times the contribution made in 2012.

“Our customers would certainly see stronger export markets with a weaker dollar,” Peter Winkley, Chief Financial Officer of Algoma Central Corp., owner of Canada’s largest fleet of bulk carriers on the Great Lakes, said by telephone Jan. 21.

Canada’s total trade deficit for 2013 narrowed to C$9.11 billion from a record C$12 billion in 2012, Statistics Canada said.

While the December trade gap exceeded forecasts, today’s report was less negative in terms of trade volumes, which can be a better indicator of economic growth because they strip out price changes. Export volumes advanced 0.8 percent and import volumes fell 0.4 percent in the month, Statistics Canada said.