Jan. 17, 2012 – Improving economic conditions south of the border helped Canada return to a robust trade surplus in November, as exports in the auto and energy sectors rebounded strongly from the previous month. Canada's $1.1-billion trade surplus in November – twice as big as expected – contrasted with October's upwardly revised $487-million deficit.
The trade picture, however, was not nearly as strong as it was in the third quarter when a exports contributed to a 3.5 per cent jump in gross domestic product.
With October's deficit and November's surplus, economists expect trade will be a modest contributor, or have a neutral effect, to Canada's economic growth in the last three months of 2011, pending December's data. But economist Peter Hall of Export Development Canada called the resurgence of the U.S. market for Canadian exports a promising development. U.S. weakness has for several years been was a key cause of the gloom among Canadian manufacturers and exporters, who are still struggling to get back to the level of activity they enjoyed before the 2008-09 recession.
"We can't get too euphoric about this number, but there are details inside this report that corroborate the mounting strength we're seeing in the U.S.,'' he said.
This week, EDC forecast Canadian exports would expand by six per cent in 2012 – particularly in autos, aerospace and forestry – principally due to the strengthening U.S. market.
In November, the trade surplus with the U.S. rose to $4.6 billion in November from $3.5 billion in October. Exports of automotive products, mostly to the U.S., increased for a third consecutive month, rising 4.9 per cent to $5.3 billion. Shipments of energy products increased 6.4 per cent to $10 billion, with sales of crude petroleum up for a fourth consecutive month to a record high of $6.4 billion. Overall, exports rose 3.2 per cent to $40.1 billion, while imports declined by 0.8 per cent to $39 billion.
On a volume basis – excluding the price effects of the strong loonie – the numbers weren't as heady although still positive. Exports rose 1.6 per cent in real terms, while imports fell 0.6 per cent.
David Madani, an analyst with Capital Economics, said the decline in imports, particularly weak purchases of machinery and equipment by businesses, pointed to weaker domestic activity.
"When I look back at the last five months or so, it doesn't give me a warm and fuzzy feeling in terms of really strong business investment,'' Madani said. "Given the strong dollar, I would have thought they'd be importing more.''
Still, the trade numbers suggest Canada's economy held up reasonably well in the fourth quarter, despite ongoing difficulties in Europe and low consumer and business confidence. Scotiabank economist Derek Holt said the Bank of Canada will likely be left with no choice next week but to upgrade its prediction of an extremely soft 0.8 per cent advance in the fourth quarter. Most economists now see the last three months of the year falling somewhere between 1.7 and two per cent in growth, and 2011 as a whole at 2.4 per cent.
Trade with the rest of the world also showed dramatic improvement from October. Canada has a long-standing trade deficit with countries outside the U.S., but in November it narrowed to $3.5 billion from $4 billion.
Exports to non-U.S. destinations rose 6.7 per cent to $11.5 billion, mainly the result of higher exports to the European Union. Imports from those countries increased 1.3 per cent to $15 billion, the fourth monthly gain.
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