Canada's trade gap widens, but exports surprisingly strong

Canadas merchandise trade deficit with the world widened in December to $649 million, as imports rose faster that exports.

That was a lower deficit than many economists had expected, but an increase from the revised $335 million recorded in November, according to Statistics Canada.

Imports rose 2.3 per cent to $44.7 billion, with a sharp increase in motor vehicles and parts and energy products.

But the export numbers were surprisingly positive, up 1.5 per cent to $44.1 billion for December despite falling oil prices.It was expected that Canada would earn much less from its exports to close out2014.

"The expected decline in energy exports resulting from the more than 50 per cent decline in oil prices since last summer was more than offset by stronger exports of manufactured goods and mineral products," said TD economist Brian DePratto in a note to clients.

"Moreover, strong import demand across most categories indicates that domestic demand is likely to have remained fairly strong in the fourth quarter of 2014," he said.

Annual trade balance is $7.2B

In more good news from the export sector, Canada's annual merchandise trade balance with the world swung from a deficit of $7.2 billion in 2013 to a surplus of $5.2 billion in 2014.

The decline of the Canadian dollar has been expected to boost exports of Canadian manufactured goods, but recently GDP data has failed to show a recovery.

DePratto warns the good news may not last. "Looking ahead, growth is expected to moderate in 2015, as low energy prices feed through to the broader economy," he said. TD continues to predict another Bank of Canada cuts to benchmark interest rates because of slowing economy.

Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary, says there has been growth in exports from the non-energy sector because of the lower dollar, but imports are set to grow more quickly than exports in the long-term.

"Even though the export numbers were a little better than expected, there isnt a great picture for the fundamentals of export for the Canadian economy as were likely to see oil prices continue to drag, hurting export growth in Canada, he told CBC News.

Smith said slowing growth in Europe and Asia is also likely to hurt Canadian exports over the coming year.

Statistics Canada reported imports from the United States rose 0.8 per cent to $30 billion in December, while exports were up 0.6 per cent to $33.1 billion, narrowing Canada's trade surplus with that country from $3.2 billion in November to $3.1 billion in December.

Exports to other countries increased 4.5 per cent to $11.0 billion in December, while imports were up 5.3 per cent to $14.7 billion.