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Shipping containers stacked in the Port of Haliax.

Roger Hallett

Canada's merchandise trade deficit was narrower than economists forecast in November with shipments of cars and metals leading the first export gain in four months.

The deficit of $1.99-billion followed an October shortfall that was pared to $2.49-billion from the initial reading of $2.76-billion, Statistics Canada said Wednesday in Ottawa. Economists surveyed by Bloomberg forecast a November deficit of $2.6-billion, based on the median of 15 estimates.

Exports climbed 0.4 per cent to $43.3-billion after three prior declines. Sales of motor vehicles and parts rose 5.9 per cent to $7.94-billion, followed by a 20.4 per cent jump in metals ores and non-metallic minerals to $1.77-billion, and a 5.5 per cent gain in forestry products and packaging materials to $3.45-billion.

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The gains in non-energy exports are what Bank of Canada Governor Stephen Poloz is counting on to drive a recovery and fulfill his prediction the economy will return to full output by mid-2017. Falling energy sales and investment led him to cut interest rates twice last year, and crude prices now at about $36 (U.S.) are pressuring him to act again.

"This is still the two-speed market that everyone feared," said Peter Hall, chief economist at Export Development Canada in Ottawa, a government financing agency.

2015 Woe

The November report does little to undo what was a year of woe for Canada's exporters. The deficit for January to November of $22.8-billion shatters the previous comparable record of $12.9-billion set in 2012.

The main culprit has been a drop in prices for exported energy. Energy shipments fell 6.6 per cent in November to $5.92-billion, capping a slide of 40.4 per cent over the prior 12 months.

Western Canada Select oil from Alberta's sand deposits closed Tuesday at $21.97 (U.S.) a barrel. The price averaged $35.65 in 2015, down from $74.42 the previous year. Energy companies such as Suncor Energy Inc. will cut their investment another 20 per cent this year in response to lower prices, the Bank of Canada said in October.

The Canadian dollar is at 12-year lows around $1.40 (Canadian) per U.S. dollar, weakening from parity in early 2013 amid signs of economic weakness in China and declines in the price of oil. Traders are pricing in more than a 50 per cent chance of a rate cut by May, up from the 31 per cent probability seen on Dec. 31.

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While automobile shipments have jumped 24 per cent over 12 months, other manufacturers are struggling to take advantage of a slide in Canada's currency against the U.S. dollar and a budding American recovery. Chemical, plastic and rubber exports, for example, have fallen 7.4 per cent since November 2014.

'Still Waiting'

Exports make up about one third of Canada's economy, with about 75 per cent of the shipments going to the U.S. Canada's trade surplus with the U.S. widened to $2.11-billion in November from $1.68-billion a month earlier, Statistics Canada said.

Canada's imports fell 0.7 per cent in November to $45.2-billion, the third straight decline. Energy imports dropped to the lowest since 2004, by 6.4 per cent to $2.12-billion.

The volume of exports advanced 0.7 per cent and import volumes fell 1.6 per cent, Statistics Canada said. Volume figures adjust for price changes and can be a better indicator of how trade contributes to economic growth.

"We are still waiting to see consistent gains from exports," Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto, wrote in a research note. "The weaker Canadian dollar and firm U.S. domestic demand will help, but it could still be some time before exports see the full positive impact."

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–With assistance from Erik Hertzberg.

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