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Canada’s trade balance unexpectedly swung into deficit in November, as the country’s energy producers shipped less product amid a drop in prices.
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Statistics Canada reported Jan. 5 that the value of exports dropped 2.3 per cent, while imports declined 2.1 per cent, resulting in a deficit of about $41 million, only the second shortfall in 2022.
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Canada recorded a trade surplus of $130 million in October and surveys of analysts showed Bay Street was expecting the surplus to widen to about $500 million. Instead, eight of 11 broad export categories posted declines, led by energy products, which plunged 4.7 per cent from the previous month.
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Coal dropped 24.3 per cent from October, natural gas fell 13.1 per cent, refined petroleum products fell 7.9 per cent and crude oil/bitumen declined 1.8 per cent. Prices played a significant role, but Capital Economics economist Stephen Brown noted that export volumes declined 1.4 per cent, an ominous sign as it signals weaker demand for exports, an important driver of Canadian economic growth.
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“Lower commodity prices have now wiped out the goods trade surplus, while the falls in export and import volumes present downside risks to the preliminary estimate that GDP edged up in November,” Brown said in a note to clients. “The latest surveys suggest that export and import volumes will weaken further.”
Statistics Canada last month forecast a month-over-month increase in gross domestic product for November of 0.1 per cent when it reported GDP for October.
Another sour note in the trade data was the 6.4 per cent drop in exports of automotive parts, the third time that has happened in four months, according to Desjardins Economics. Including this most recent drop, Desjardins estimates that international shipments are now 20.4 per cent below pre-pandemic levels.
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“This suggests current setbacks could have more to do with a drop in demand than with lingering pandemic disruptions,” Jocelyn Paquet said in a note.
The export news wasn’t all grim. Agricultural shipments increased for the seventh time in eight months, Paquet noted, with wheat and canola reaching new all-time highs.
“The conflict in Ukraine has certainly stimulated demand for these crops, but the massive increase in exports would not have been possible without the particularly good harvest experienced last summer,” she wrote.
Among the import segments that recorded pullbacks: aircraft and transportation equipment fell 14 per cent; forestry products and building materials fell 6.1 per cent, and consumer goods declined 5.7 per cent.
Weaker pharmaceutical imports were partly to blame for the drop in consumer goods imports. But Statistics Canada noted that other consumer goods imports also fell, “a worrying sign for domestic demand,” Brown wrote.
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