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2008 Outlook
December International trade surplus shrinks to 9-year low - deeper drop to continue for 2008
"Goodbye twin surpluses," says Doug Porter, deputy chief economist at BMO Capital Markets. The U.S. share of Canada's exports fell to 76.4 percent last year from 79.2 percent in 2006.
OTTAWA - Many news organizations reported on yesterdays Statscan report highlighting Canada's trade surplus shrinking to a nine-year low in December, likely dragging down economic growth and possibly leading to the country's first current account deficit in more than a decade.
Weakening U.S. demand and a strong Canadian dollar pinched exports to yield a smaller-than-expected surplus of C$2.35 billion ($2.35 billion, compared with C$3.76 billion in November, according to a Statistics Canada report on Thursday.
Economists widely expected net exports to weaken and slow growth this year, but the market consensus was nonetheless for a more robust surplus of C$3.4 billion in December.
The Canadian dollar slipped against the U.S. dollar after the report to US$1.0010, valuing each U.S. dollar at 99.90 Canadian cents, down from US$1.0030, or 99.70 Canadian cents.
Exports fell 3.1 percent to C$36.7 billion with drops in every sector except energy products. Industrial goods and automotive products led the downturn.
In a sign of strong domestic demand, imports climbed 0.7 percent to C$34.35 billion.
"This combination points to an even deeper drop in the trade surplus in 2008 and the likely return of current account deficits in Canada for the first time this decade," said Doug Porter, deputy chief economist at BMO Capital Markets.
"Goodbye twin surpluses," he said.
Canada's current account surplus dwindled in the third quarter of 2007 to C$1.04 billion from C$6.35 billion in the previous quarter.
The trade report reinforced expectations that the Bank of Canada will lower its benchmark interest rate on March 4 to help cushion the economy from the effects of the U.S. housing recession.
"The Bank of Canada has already suggested that they will cut the overnight rate once again in March. This report supports such an action," said Karen Cordes, economist at Scotia Capital.
Real net exports are likely to subtract 4.5 percentage points from real gross domestic product in the fourth quarter, said Ted Carmichael, chief economist at J.P. Morgan Canada.
"We continue to expect that fourth-quarter real GDP growth slowed to 1.0 percent from 2.9 percent in the third quarter," he said, referring to annualized rates.
Exports to the United States slipped 1.3 percent, causing the surplus with Canada's top market to drop to C$6.13 billion from C$6.32 billion in November.
In 2007 as a whole, both exports and imports hit record highs but there was a dramatic shift in exports to non-U.S. countries. The U.S. share of Canada's exports fell to 76.4 percent last year from 79.2 percent in 2006.
Reuters
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