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Plunge in exports spurs first trade deficit in 30 years
(Source: Globe and Mail Update, with files from the Canadian Press)
Canada has recorded its first trade deficit in more than 30 years, with drops in both exports and imports driving the trade balance to negative $458-million in December.
It's the first trade deficit since March, 1976, as the stagnation in global trade meant exports fell at a faster pace than imports in the month.
“The combination of a collapse in commodity prices and a collapse in U.S. demand took a meat clear to exports,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns, calling the trade report a “watershed” in Canadian economics.
Analysts had been expecting the slimmest of trade surpluses for Canada, forecasting $500-million in December compared to $1.2-billion in November.
The small deficit contrasts starkly with the $5-billion monthly surpluses recorded regularly last year.
Exports dropped an astonishing 9.7 per cent to $35.3-billion in December, the largest monthly decrease in percentage terms since October, 1982, Statscan said. The declines were widespread, and were related to both falling prices and falling volumes.
Imports also dropped, down 5.7 per cent from a month earlier to $35.8-billion, mainly because of fewer purchases of machinery and equipment, automobiles and industrial goods. Imports remain above year-ago levels, but the decline in December reverses the trend after three consecutive monthly increases.
Canada had a trade surplus with the United States, but it was smaller in December than in November. Exports to the United States fell 10 per cent, led by a slump in crude oil sales. Imports fell 8.4 per cent, leaving Canada with a $3.8-billion surplus for the month. That's down from $4.6-billion in November, and the lowest level since December, 1998, Statscan said.
Exports of energy products dropped 19.4 per cent to $6.8-billion, largely reflecting a 29.1 per cent drop in crude sales related to falling prices. Exports of industrial goods and materials fell 17.1 per cent to $7.4-billion, largely due to a drop in volume.
Agricultural and fishing products exports dropped seven per cent to $3.4-billion in December, reversing an upward trend noted since June 2006.
As for imports, machinery and equipment purchases fell 5.7 per cent, partly offset by a 26.7 per cent increase in imports in the aircraft sector.
Imports in the auto sector posted their third consecutive monthly decline, falling 9.8 per cent. The main driver was a drop in imports of car parts, which fell 17 per cent as manufacturers scaled back production.
The unexpectedly weak Canadian trade data adds to an already gloomy picture of global trade. The United States and China both posted unsettling trade numbers on Tuesday, too.
China's exports fell 17.5 per cent in January compared to a year earlier, the third monthly decline, and imports fell 43 per cent. Importantly for Canada, the drop in imports reflected a slump in the demand for commodities and raw materials.
In the United States, the trade deficit improved slightly, and is now the smallest since 2003. But the improvement was recorded only because the global recession ate into both U.S. imports and exports.
“As if markets needed more evidence that global trade is collapsing fast enough to spark growing worries regarding protectionist sentiments,” said economists at Scotia Capital Markets Inc. “But we got it via evidence of a weaker than expected trade picture in Canada and the U.S.”