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Shipping containers sit at Port Metro in Vancouver in this file photo.Ben Nelms/The Globe and Mail

Canada's trade deficit shrank to its smallest in five months in December, as a surge in exports delivered some positive momentum to an economy emerging from a difficult 2015.

Statistics Canada reported a December trade deficit of $585-million, down sharply from a revised $1.6-billion in November, and much smaller than the $2.2-billion that economists had predicted. The revised November figure was also an improvement from the originally reported $2-billion.

The results send the trade side of the Canadian economy into 2016 with a more upbeat tone than many experts had expected, after stumbling through months of sluggish demand and weak prices in export markets. The highlight of the report was a 3.9-per-cent jump in exports from November, the biggest month-over-month gain since June, fuelled by a combination of stronger volumes (up 2.1 per cent) and generally higher prices (up 1.8 per cent), despite further deterioration in commodity prices.

"Exports bounced at the end of 2015, raising hopes that the lower dollar is beginning to more forcefully turn the tide on trade," said Douglas Porter, chief economist at Bank of Montreal, in a research note.

Economists said trade now looks to have had a positive contribution to economic growth for the fourth quarter, although not for the most encouraging of reasons: Export volumes for the quarter actually slipped 0.1 per cent, but import volumes were even weaker, down 2.6 per cent. They cautioned that even with trade's contribution, overall gross domestic product for the quarter was still probably near-flat.

However, they said the improvement in trade to end the year suggests a brighter picture for the economy in the first quarter of 2016.

"That's a decent start to December GDP, and with November also on the plus side, it points to a move back into positive GDP growth for Q1," said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce.

Still, for 2015 overall, exports weren't the positive economic driver that many observers had hoped they would be when the year began. Statscan said that while export volumes rose 4 per cent in the year, they declined 0.9 per cent by value, held back by weak prices despite the decline of the Canadian dollar. Non-energy exports grew nearly 10 per cent in the year, but overall trade was dragged down by the battered energy sector, where exports tumbled nearly 35 per cent due to depressed prices. Energy products make up roughly one-fifth of Canada's exports.

A pronounced lull in the U.S. economic recovery in the final months of 2015 (estimated fourth-quarter GDP growth was a thin 0.7 per cent annualized) has weighed on Canada's trade picture, as the U.S. market accounts for roughly three-quarter of Canada's exports. But December exports to the United States were up 2.9 per cent from November, and the details of the report suggest a rebound in both consumer and business demand.

December's export gains included a strong 4.6-per-cent increase in the auto sector, as well as a 6.4-per-cent jump in consumer goods. Exports of industrial machinery, equipment and parts also surged 7.2 per cent.

"Non-energy exports are ramping up, helped by better demand stateside (the trade surplus with the U.S. is the highest in months) and a cheap Canadian dollar," said Toronto-Dominion Bank economist Dina Ignjatovic in a research note.

But a key factor that has been holding back the U.S. economy – namely, weak demand for its exports, a function both of tepid growth in many of its trading partners and the strong U.S. dollar that has made U.S. goods more expensive – showed little improvement. The U.S. December trade data, released at the same time as Canada's numbers, showed a deficit of $43.4-billion, up slightly from November's $42.2-billion. Notably, exports slipped 0.3 per cent, their third consecutive decline. U.S. exports for 2015 as a whole were down 6.9 per cent, which included a 3.9-per-cent fall in volumes.

"Modest global growth and a lofty currency will remain challenges for U.S. exporters," said Toronto-Dominion Bank economist Leslie Preston.

Canada's own imports from the U.S. rose 1.3 per cent in December, their first increase in five months. Over all, Canadian imports showed a rebound in domestic demand, rising 1.6 per cent month over month, with widespread gains that were due almost entirely to higher volumes. Imports of consumer goods rose 2 per cent, while electronics and electrical equipment rose 2.3 per cent.

But sluggish imports of industrial machinery and equipment continue to indicate weakness in Canada's business investment, which remains a major drag on overall economic growth. Machinery and equipment imports crept up 0.5 per cent in December, but were down 1.3 per cent for the fourth quarter overall, their fifth straight quarterly decline.

"Imports of machinery and equipment continue to fall, suggesting the investment slump extended to the fourth quarter," said Krishen Rangasamy, senior economist at National Bank of Canada, in a research note. "The contribution from trade [to fourth-quarter growth] will be offset by an expected drag from investment."

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