Canada’s trade deficit unexpectedly ballooned to C$3.19 billion ($2.55 billion) in December as imports grew faster than exports for the second month in a row, data from Statistics Canada indicated on Tuesday.
The shortfall – the 11th in a row – exceeded the C$2.20 billion deficit predicted by analysts in a Reuters poll and was the seventh largest on record.
Bank of Canada Governor Stephen Poloz has frequently expressed concerns about the export sector, especially given the uncertainty over the future of the North American Free Trade Agreement (NAFTA).
“Trade has been consistently a soft spot for Canada and this report doesn’t change that,” said Benjamin Reitzes, senior economist at BMO Capital Markets.
Trade looked set to subtract more than expected from fourth-quarter annualized gross domestic product, he said in an interview, making the Bank of Canada’s forecast of 2.5 percent growth “much more difficult to attain.”
Poloz said on Jan. 25 that even he did not know what potential there may be for further interest rate hikes this year. He reiterated that policymakers remained both data-dependent and alert to developments with NAFTA. The central bank has raised rates three times since the middle of 2017.
The Canadian dollar was little changed on the news. Data released in Washington showed the U.S. trade deficit hit a nine-year high in December.
Imports rose by 1.5 percent to a record C$49.70 billion on increases in nine of 11 sections as volumes posted a 1.0 percent gain. Imports of energy products jumped by 16.9 percent.
Exports increased for the third month in a row, strengthening by 0.6 percent to C$46.51 billion. Exports of energy products, which had been hit by pipeline disruptions in November, expanded by 6.2 percent to hit the highest level in more than three years.
“It was a flat month and not a great handover into 2018. I am still optimistic that trade in 2018 will be positive, given the strength of global growth,” said Ross Prusakowski, a senior economist at Export Development Canada.
Exports to the United States fell by 0.8 percent, while imports dropped by 1.3 percent. As a result, the trade surplus with the United States, which accounted for 75.1 percent of Canadian goods exported in December, edged up to C$3.42 billion from C$3.28 billion in November.
The annual merchandise trade deficit with the world in 2017 was C$24.00 billion, the second highest on record after the C$25.87 billion posted in 2016.