By Robb M. Stewart
OTTAWA--Canada ended last year with its first trade deficit in months, yet strong export volumes over the final quarter support expectations that the country's economy perked up.
The country swung a goods-trade deficit in December, thanks in part to a stronger Canadian dollar and further weakness in exports to the U.S., and logged a slight shortfall for the full year. Over the fourth quarter of 2023, though, exports climbed and imports retreated, which economists say suggests trade added solidly to gross domestic product growth.
Canada recorded a trade deficit in December of 312 million Canadian dollars, the equivalent of about $231 million, Statistics Canada said Wednesday. The balance was much weaker than the C$1 billion surplus expected by economists, and marked the first deficit since July.
Merchandise exports were down 1.9% to C$64.07 billion in the latest month, while imports edged up 0.2% to C$64.39 billion, the data agency said.
The Canadian dollar appreciated against its U.S. counterpart in December, lowering the value of monthly trade when the large proportion of transactions completed in U.S. dollars is converted. In U.S. dollars, Canadian exports ticked up 0.1% for the month and imports advanced 2.3%.
Lower prices for crude oil in the final two months of last year weighed on energy exports, which fell 3.1% on-month in December. Still, in price-adjusted, or volume terms, crude exports were up for a fifth consecutive month following an increase in oil production in the province of Alberta during the fall following the completion of maintenance work at some facilities.
Energy products also drove a second consecutive quarterly increase in exports. The data agency said exports overall were up 1.6% for the latest quarter, after increasing 2.8% the quarter before, while imports edged up 0.2% as increases in consumer goods offset a fall in imports of vehicles and parts. On an annualized basis, economists estimate export volumes jumped 4.3% for the quarter, while price-adjusted imports declined 1.8%.
The strength of trade flows supports Statistics Canada's flash estimate suggesting the economy grew 1.2% annualized in the fourth quarter following a 0.3% contraction the quarter before. That was based on November's 0.2% rise in industry-level gross domestic product from the month before, the first expansion since May, and early evidence growth picked up to 0.3% in the final month of the year.
"Net trade will be a positive for what we expect to be modest fourth-quarter GDP growth, with export volumes bouncing back following third-quarter supply-side disruptions," said Katherine Judge, senior economist at CIBC Capital Markets in Toronto.
Still, Judge said the drop off in imports for the quarter implies weaker inventory accumulation. That will feed into the official consumption-based GDP data for the quarter that will be released at the end of February.
The Bank of Canada expects economic growth, which stalled in the middle of 2023, to remain flat in the near term even as tightness in some parts of the economy, particularly housing, continues to hold inflation up.
In comments made to lawmakers last week, central bank Gov. Tiff Macklem said that while growth in the last quarter of 2023 is likely to be stronger than the Bank of Canada's official projection of no growth, it is still likely to be fairly weak.
Stephen Brown, deputy chief North America economist at research firm Capital Economics, said while net trade looks to have contributed to a likely fourth-quarter rebound, the fall in exports in December and recent surveys indicating external demand remains weak mean the boost will probably go into reverse in the current quarter.
For December, exports of motor vehicles and parts also were down, declining 8.2% for the month, which the data agency said was in part due to a gradual slowdown in the production of certain models that will soon no longer be made in Canada or will be manufactured at other Canadian plants. Despite the fall, exports of vehicles and parts jumped 26.2% in 2023.
On the imports side, purchases from abroad in December were buoyed in part by consumer goods, which saw the strongest month increase on record with a jump of 9.4%, driven by a rise in high-value imports from the U.S. in a month when Canada usually posts declines. Imports of clothing, footwear and accessories, miscellaneous goods and supplies and alcoholic beverages also saw strong gains for the month.
Exports to the U.S., Canada's biggest export market by a wide margin, were down for a third straight month with a drop of 3.4%, while imports increased 0.7%. That narrowed Canada's surplus with its neighbor to C$9.22 billion from C$11.20 billion the month before.
Exports to countries other than the U.S. increased 3.3% in December, and imports were down 0.6%, the agency said.
When international trade in goods and international trade in services for December were combined, Canadian exports fell 1.3%, while imports rose 0.2%. As a result, Canada's trade surplus incorporating both goods and services moved to a deficit of C$1.02 billion from a modest C$173 million surplus in November.
Over the full year, merchandise imports climbed 1.4% but exports decreased 1.4%. That left the country with a goods-trade deficit of C$1.43 billion after a surplus in 2022 of C$19.71 billion. Canada recorded trade deficits each year from 2015 through 2020.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
02-07-24 1120ET
