Canada’s annus horribilis in trade is over, and prospects are looking up again.
The merchandise trade deficit shrunk to $237-million in January from a revised $332-million in December on the strength of surging exports of energy, plus metal and mineral products.
Exports rose 2.1 per cent to $39.1-billion from December, while imports gained 1.9 per cent to $39.3-billion.
One month alone doesn’t tell the full story. But if economists are right, trade is about to start giving the economy a much-needed boost after the worst year for the country’s trade balance since the Canada-U.S. Free Trade Agreement was signed in 1988.
The key driver is the return to health of the United States, which buys more than 70 per cent of what Canada sells.
“The improvement in the trade picture, small as it may be, is an important first step for the Canadian economy,” Toronto-Dominion Bank economist Francis Fong pointed out.
After an “undeniably weak 2012,” exports could be the country’s economic salvation this year, Mr. Fong said. That’s because other recent sources of strength are starting to fade, including construction, government spending and consumers.
The bottom line is that trade is now adding to gross domestic product, not subtracting.
The catch is that January’s bump in exports will have to be sustained over the rest of the year to have a major impact on economic growth.
So far, the recovery is largely about oil. Oil exports rose 6.7 per cent in January, reversing a trend of recent months as pipeline bottlenecks and low prices hit Canadian crude.
The export rebound will have to be much more broad-based to help the whole country, including the manufacturing heartland of Ontario and Quebec. Auto shipments fell 6.7 per cent in January.
The recent weakness of the Canadian dollar, which is now trading at about 97 cents (U.S.), will help a bit.
Canada will still need a much stronger U.S. recovery and a healthier global economy to fully regain its trade swagger.