Canadian Trade Deficit Narrowed In January

Canada’s merchandise trade deficit narrowed to C$0.24 bn in January, from a revised C$0.33 bn deficit. The improvement was due to exports (+2.1%) rising faster than imports (+1.9%). The energy trade surplus rose C$0.1 bn to reach C$4.9 bn, the highest since June of last year, helped offset the C$0.03 bn widening of the nonenergy trade deficit. Aside of energy (+6.7%), there were export gains for basic industrial goods (+5.6%), electronic equipment (+6.9%) and consumer goods (+3.5%). Those gains more than offset the declines in autos (-7.6%), aircraft equipment and parts (-2.8%) and metal ores (- 16%). Imports were supported by healthy gains in energy and industrial machinery. The goods trade surplus with the US rose to C$4.25 bn, the highest since March of last year (top chart). In real terms, both exports and imports rose 1.8%.





OPINION: Canada's January trade report was better than expected given the healthy exports. The trade report also explains the upside surprise for exports in the Q4 GDP report last week. We’re now told by Statistics Canada that both November and December exports were revised up sharply. There is room for further improvement in trade if, as we expect, our auto exports bounce back in response to the solid US auto demand. With one month of data in Q1, total export volumes are tracking an annualized increase of around 11.4%. That comes after a relatively weak export performance last year. That also signals a pick-up in Canadian GDP growth, after a disappointing second half of 2012, consistent with our call for growth of just under 2% annualized in Q1. That’s not to say that all is now good for Canadian trade. Challenges remain for exporters as the lagged impacts of the strong Canadian dollar are felt particularly in the non-resource sector. The energy sector also faces challenges as evidenced by a still-wide spread between WCS and WTI oil prices, something that explains why our nominal energy exports remain well below 2011 levels despite near record volumes.