Exports increased slightly in November, contributing to a narrowing of Canada’s trade deficit to $2 billion—beating analysts’ forecasts of a $2.6 billion gap—according to Statistics Canada data released January 6.
Economists point out, however, that export growth has been muted and the expected boost relating to the plunge in the Canadian dollar over the past year has yet to materialize.
“While the weak loonie is certainly a positive for Canada's export sector, the response thus far has been slower than normal—about half the pace seen in the past—suggesting that exports are more sensitive to foreign demand than exchange rate movements,” said TD Economics’ Dina Ignjatovic in a note to investors.
Exports grew 0.4% in the month, led by gains in autos (up 5.9%), forestry (up 5.5%) and metals and minerals (up 20.4%). Meanwhile, imports slipped 0.7%, led by a drop in energy (down 6.4%) and metals and minerals (down 11%).
Ignjatovic said growing U.S. domestic demand should lead to a pick-up in exports, especially in those sectors that are less sensitive to the exchange rate, which include about half of all non-energy sectors. Benjamin Reitzes, senior economist and director of economic research for BMO Capital markets, said it could take a while before exports provide a much-needed boost to the Canadian economy.
“While the November [StatsCan] report points to a more positive contribution from trade to GDP growth in Q4, we’re still waiting to see consistent gains from exports,” Reitzes said. “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 from those factors.”
At the same time StatsCan released its report, the U.S. announced its trade deficit also shrank in November, reaching $42.4 billion, and ADP released its U.S. jobs data for December, which showed a jump in private sector employment of 257,000 jobs. These factors contributed to a weakening of the Canadian dollar and brought it to a 12-year low. As of press time, the loonie was trading at 70.99 cents U.S., down from 71.35 cents U.S. the previous day.
