Canada: Trade, a drag on the economy in Q4 offset by business investment - NBF

Today’s data showed that in December the trade deficit in Canada was larger than expected, at CAD 3,2bn (vs -2.3bn). According to National Bank of Canada’s analysts, Krishen Rangasamy, it seems Canada got a good handoff from Q4 last year with goods trade being a drag on growth in the fourth quarter as real imports grew faster than real exports.

Key Quotes:

“Canada’s merchandise trade deficit widened to C$3.2 bn in December. The C$0.5 bn deterioration in December was due to nominal imports (+1.5%) rising faster than nominal exports (+0.6%).”

“The trade surplus with the U.S. rose to C$3.4 bn, while the trade deficit with nonU.S. trade partners deteriorated to C$6.6 bn the worst since September 2016.”

“It’s unclear if trade deals such as the Comprehensive Economic and Trade Agreement (CETA) with the European Union or the Trans Pacific Partnership (TPP) will help narrow the trade deficit with non-U.S. trade partners ─ two months into CETA and the goods trade deficit with the EU surged to C$2 bn in December, the largest ever recorded.”

“A more competitive Canadian dollar may also be necessary to bring goods trade closer to balance in the future.”

“Looking at the quarterly picture, it seems Canada got a good handoff from Q4 last year. True, goods trade was a drag on growth in the fourth quarter as real imports grew faster than real exports. But the increase in import volumes, particularly of machinery and equipment, suggests another strong quarter for business investment spending. All in all, we remain comfortable with our call for Q4 Canadian GDP growth to print about 2% annualized.”