Canadian trade deficit widened in December

Statistics Canada says the country's trade deficit widened to $1.7 billion in December from $1.5 billion in November, the third straight month of deepening deficits.

The trade gap is propelled in part by a falling Canadian dollar, which makes imports more expensive. Import volumes actually fell 0.4 per cent, but the value of merchandise entering Canada was up 1.2 per cent in December.

Higher imports of energy products helped push up the import total to $41.4 billion.

Exports increased 0.9 per cent in December to $39.7 billion, but exports of energy products, farm, fishing and food products declined. Despite the spell of cold weather, the U.S. bought less crude oil and natural gas from Canada and new meat-labelling laws in the U.S. have led to a reduction in beef exports.

Bank of Canada governor Stephen Poloz has expressed puzzlement about the slow recovery of the export sector, which has not sprung back as expected with the falling dollar. There are signs that Canada has lost significant capacity in manufacturing, particularly in motor vehicles and parts.

Exports to the United States rose 1.2 per cent to $30 billion, while imports declined 0.4 per cent to $27.1 billion. Canada's trade surplus with the U.S. rose to $2.9 billion from $2.4 billion in November.

Imports from countries other than the United States rose 4.3 per cent to $14.2 billion while exports to those countries were unchanged at $9.7 billion. The trade deficit with countries other than the U.S. totalled $4.5 billion in December, up from $4 billion in November.

TD Bank economist Leslie Preston notes that trade data are volatile from month to month, but the overall trend in 2013 was positive.

"Export growth improved modestly (+3.5 per cent) off of a very poor 2012 performance (+1.3 per cent), with the majority of industry categories seeing an improvement. Not surprisingly given announced shutdowns in the sector, motor vehicles and parts exports were down as were electronic equipment and finally metals and non-metallic minerals and their related products all declined in 2013 on lower prices," Preston said in a note to investors.

TD expects Canada's export trade to recover in 2014, despite the rough fourth quarter of 2013.