Canadas merchandise trade deficit deepens, first annual deficit since 1975

The Canadian Press ~ The News
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OTTAWA - Canada posted its worst trade performance in more than three decades last year as the global recession and a strong loonie hammered exports.
Statistics Canada reported Wednesday that the country's merchandise trade deficit widened to $246 million in December, bringing the shortfall for 2009 to $4.8 billion.
That is the first annual trade deficit in the goods sector since 1975 and a total reversal of fortune from last year's $47-billion surplus.
But there's light at the end of the tunnel, say economists, noting that exports increased for the fourth straight month, by 1.7 per cent, in December.
The recent uptick means trade will modestly contribute to gross domestic product growth in the fourth quarter of 2009 after being a major drag throughout the year, economists said.
"We're digging ourselves out of the hole, but it is a pretty big hole," said economist Peter Buchanan of CIBC World Markets.
Despite the fall increase, exports remain 27.5 per cent down from their peak in July 2008.
The December deficit was more than twice consensus expectations, but it was the kind of deficit that economists say bodes well for the economy. The imbalance was not due to an outright export decline, which would indicate economic production had fallen off, but rather to a bigger-than-expected 1.8 per cent growth in imports.
Bank of Montreal economist Douglas Porter said that even the rise in imports comes with a silver lining since it shows Canadians are spending.
"Longer term it's not a good sign for Canada to be running a merchandise trade deficit when it already has a very large deficit in services and investment income," he explained.
"(But) at this point the more important issue is whether the economy is actually turning the corner or not, and continuing growth in both exports and imports is a good sign."
Porter noted that the steep deterioration in exports last year was almost all attributable to the drop in commodity prices at the start of 2009.
In dollar terms, exports grew to $32.2 billion in the last month of 2009 from $31.7 billion in November. Imports rose to $32.4 billion from $31.9 billion.
A key reason for the upturn in exports was a greater demand in the United States for Canadian-made automobiles and autos parts.
In an analysis, TD Bank economist Francis Fong said that with passenger car exports rising 11.7 per cent in December, the sub-sector had already returned to pre-recession levels.
But the longer-term prospects are not as rosy, economists said, since the U.S. economy is expected to slow from its outsized 5.7 per cent advance in the fourth quarter of 2009. Uncertainty about the European debt crisis could also dampen global demand.
Meanwhile, economists said the improvement in Canada's trade numbers in the fourth quarter should support growth in the three to four per cent range for the quarter.

Organizations: Statistics Canada, CIBC World Markets, Bank of Montreal TD Bank

Geographic location: Canada, OTTAWA, United States

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