A gradual reawakening of the mighty U.S. economy is starting to power Canadian exports.
But slumping sales to virtually every other corner of the world in November swamped improving U.S. prospects, pushing Canada’s trade deficit to the fourth-highest level on record.
The merchandise trade deficit widened much more than expected to $2-billion, up from a revised $600-million gap in October, Statistics Canada reported Friday. (The October deficit was previously estimated at $200-million.)
Canada’s highest-ever trade deficit was in September, 2010: $2.6-billion.
Led by autos and energy, exports to the U.S. rose 3.9 per cent in November in what some economists say is a good omen of what lies ahead for Canadian exporters.
But exports to the rest of the world fell 13.4 per cent, plunging nearly 20 per cent to recession-ravaged Europe.
November’s surprisingly large trade deficit is forcing many economists to rethink their growth forecasts for the final three months of 2012. Many now project that the Canadian economy grew at a paltry 1-per-cent annual rate in the quarter, or worse.
BMO Nesbitt Burns senior economist Benjamin Reitzes, for example, said his 1.2-per-cent forecast is likely at risk.
“It looks like trade will take another bite out of already weak growth,” he said.
Over all, imports jumped 2.7 per cent in November, led by commodities, autos and electronic equipment. Pre-Christmas sales of Apple Inc.’s iPhone 5 helped spur a 5.6-per-cent jump in imports of mobile devices and other electronic and electrical equipment.
In a troubling sign for Canadian business investment, imports of machinery and equipment fell 1.7 per cent.
The more important story for Canada’s export-dependent economy: Exports over all fell 0.9 per cent, as those higher shipments to the U.S. were overwhelmed by declines virtually everywhere else. Exports to countries other than the U.S. hit their lowest level in more than two years.
Exports of farm products also fell sharply – down 14.6 per cent – as the effects of the long summer drought in the U.S. began to ease.
That leaves exports on a course to drop for a fourth-straight quarter in the October-December period of 2012. Exports are down 10 per cent since peaking at the end of 2011.
A key “silver lining” in the Statscan report is the rise in exports to the U.S., where the economy is beginning to gather steam, said Toronto-Dominion Bank economist Leslie Preston. But she acknowledged it may take until the second half of this year for the U.S. recovery to produce a “more substantive improvement in Canada’s trade picture.”
There are still fiscal worries in the United States, where a likely combination of higher taxes and less federal spending will dampen growth.
But there is also cause for optimism. The pace of job creation is gathering momentum, consumer spending is coming back as Americans work off their debts, and the long housing slump is over. That all bodes well for many of the products Canada sells, including energy, softwood lumber and autos.
Bank of Nova Scotia economist Derek Holt argued the November trade figures aren’t as bad as they look. He said the fall in exports was heavily influenced by lower prices of some key products.
The far more significant cause of the unexpectedly large trade deficit in November was the jump in imports, he said. And that suggests that consumers were busy spending and scooping up foreign goods. “It signals underlying strength in other areas of the economy,” Mr. Holt said.