In the red: Canada goes into trade deficit
Canada goes into the red after 33 years
Canada posted its first trade deficit in almost 33 years in December on plunging exports and weakness in the crucial US market, prompting analysts to predict the days of regular multi-billion dollar surpluses were over for the time being.
Statistics Canada said today that the December deficit was C$0.46 billion (US$0.37 billion) in December, the first since the C$79 million recorded in March 1976.
Analysts had on average predicted a C$0.8 billion surplus after the C$1.16 billion surplus in November.
The figures demonstrate just how seriously the global crisis is hurting Canada, a leading commodity producer which relies very heavily on trade with the US.
They also reflect the impact of lower energy prices.
"Canadian trade deficits may well now be a semi-permanent feature on the landscape, at least until the US economy pulls out of its deep dive," said Doug Porter, deputy chief economist with BMO Capital Markets.
"Simply put, Canada's trade position has feasted for decades on a backdrop of ravenous US demand. With that appetite now on the strictest diet imaginable, our trade outlook has withered accordingly."
Immediately after the trade data were released, the Canadian dollar dropped as low as C$1.2515 to the US dollar, or 79.90 US cents, from its pre-data level around C$1.2459 to the US dollar, or 80.26 US cents.
"This is stunningly weak report. It shows the head winds on Canadian trade are much more ferocious than initially thought and suggests downside to the pace of Canadian economic growth," said Charmaine Buskas, a strategist at TD Securities to Reuters.
Exports plunged by 9.7% to C$35.30 billion - the fastest month-on-month decrease since the 14.2% recorded in October 1982 - on the falling value of energy products and industrial goods.
Imports dropped by 5.7% to C$35.76 billion on lower volumes of machinery, automotive products and industrial goods.
Exports to the US - which takes around 75% of all Canada's exports - dropped by 10%.
"With the real deficit widening as well, Canada's trade sector remains a drag on economic growth," said Derek Holt and Karen Cordes of Scotia Capital Research.
Finance Minister Jim Flaherty said the deficit was partly due to past strength of the Canadian dollar, but that recent weakness in the currency should help the situation.
"It has a lot to do with the currency," he told reporters. "The dollar has adjusted. It will make a difference going forward."