Canada posts Dec trade deficit as energy prices fall, economy slows

BY Reuters | ECONOMIC | 02/07/23 08:46 AM EST

By Ismail Shakil and Steve Scherer

OTTAWA, Feb 7 (Reuters) - Canada posted a C$160 million ($119.1 million) trade deficit in December as energy products dragged down exports and slowed economic growth weighed on consumer goods imports, data showed on Tuesday.

The deficit was better than analysts' expectation for a C$500 million deficit, and was smaller than November's C$219 million deficit, which was revised by Statistics Canada.

"While net trade contributed positively to the likely 1% annualized gain in gross domestic product last quarter, the drop in imports points to weaker domestic demand," said Stephen Brown, senior Canada economist at Capital Economics.

Total exports fell 1.2% in December, dragged down by energy products, which fell for a third straight month in December to their lowest level in 2022, Statscan said. By volume, total exports were up 0.9%.

The decline in energy products was partly offset by exports of motor vehicles and parts, which rose 21% to C$7.5 billion, its highest level since September 2020.

Total imports were down 1.3%, largely attributable to declines in the consumer goods and motor vehicles and parts product sections. By volume, total imports fell 1.9% in December.

The figures show there was "not a great handoff into 2023, certainly not the handoff that we would like to see," Stuart Bergman, chief economist at Export Development Canada, said in an interview.

Last month the Bank of Canada hiked its key interest rate to 4.5%, the highest level in 15 years, and said it would hold off on further increases for now to let the eight rate increases in 10 months sink in.

The softening in domestic demand "is exactly what the central bank is setting out to do" with its rate increases, Bergman said.

Canada's trade balance posted a surplus for a second consecutive year in 2022, rising to C$20.1 billion from C$4.6 billion in 2021.

The Canadian dollar was trading 0.1% lower at 1.3455 to the greenback, or 74.32 U.S. cents. ($1 = 1.3436 Canadian dollars) (Reporting by Ismail Shakil and Steve Scherer in Ottawa; Additional reporting by Fergal Smith in Toronto and Dale Smith in Ottawa; Editing by Jonathan Oatis)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.