–Statistics Canada To Report Fri On Expansion Of Imports Over Exports
–Analysts: High C$ Brings In Machinery & Equipment For Industry

By Akhil Shah

OTTAWA (MNI) – Canada’s deficit in world goods trade is expected to
have widened in December when Statistics Canada’s releases its monthly
report Friday morning.

After nine consecutive monthly deficits, economists surveyed by
Market News International expect the deficit to expand to C$400 million
after it dropped sharply to a surprising C$81 million in November, on
rising commodity prices and weaker imports.

“The outsized drop in import volumes should reverse in December,
pulling down the real trade balance, with a stronger Canadian dollar
moderating the prices for nominal imports,” Emanuella Enenajor, an
economist at the Canadian Imperial Bank of Commerce, wrote in a research
note.

In November, the trade deficit contracted by C$1.394 billion from
October to C$81 million as exports grew by 0.8% while imports decreased
3.2%. This was the lowest level the deficit had reached since March and
is a long way from the record C$2.4 billion deficit Statistics Canada
reported in July.

Craig Alexander, chief economist at the Toronto Dominion (TD) Bank,
expects the trade deficit to come in at C$400 million in December, “a
bit of a deterioration from November,” he said during a telephone
interview.

“We expect exports to have risen 2% in December; part of that comes
from the rise in automotive sales in the U.S.,” he said. Exports of
automobiles and automotive products from Canada are, as a result,
expected to post an increase in December.

“Imports are expected to rise 2.6% and outstrip exports,” Alexander
said. “We anticipate energy and machinery and equipment to be two of the
core sources of imports.”

“Businesses are taking advantage of low interest rates and the
strong Canadian dollar, to buy imported machinery and equipment, which
is a good thing for the Canadian economy,” Alexander said.

A core Canadian problem is poor productivity, using less machinery
and equipment per employee than the United States particularly.

“We want to see more businesses to start investing in machinery and
new technologies,” Alexander said, and there has been growing machinery
and equipment spending over the last few quarters.

Although this spending has been coming at the price of a wider
trade deficit, “it is a deficit worth having” because it will boost
productivity, he said.

“A trade deficit caused by an investment boom in Canada is good in
the long run, as long as isn’t getting up to levels that are a problem,”
Alexander said.

Douglas Porter, deputy chief economist at the Bank of Montreal,
sees a C$250 million deficit expansion in December from November,
smaller than others expect, and does not necessarily agree that this
deficit will be good for productivity.

“The important point to note is that in the last couple of months
we saw a big and somewhat surprising improvement in the trade deficit,
it narrowed quite abruptly,” Porter said during a phone interview.

“November’s deep drop in imports is expected to reverse in December
and to bounce back rapidly compared to projected export growth,” Porter
said.

Automotive exports to the United States are expected to rise, and
commodity prices are expected to increase the numbers for
resource-related exports, Porter said.

Imports are expected to have increased because the rebound in
Canadian capital spending is likely to pump up machinery and equipment
imports, he said.

From a long term perspective, this deficit “need not necessarily”
be good for the Canadian economy, Porter said. More than weaker labor
productivity, the strong Canadian dollar has been a prime factor in
weakening Canadian export competitiveness, he added.

In Porter’s view, the trade deterioration suggests the C$ has been
overvalued and deficits will not help that.

–Akhil Shah is a Need to Know News reporter in Ottawa

** Market News International Ottawa **

[TOPICS: M$C$$$,MAUDS$,MN$FX$]