Canada’s foreign trade position in December was little changed. A small deficit remains outstanding with the world. This is not typical for the nation on a historical basis.
Canada’s foreign trade position in December was little changed. A small deficit remains outstanding with the world. This is not typical for the nation on a historical basis.
When the Canadian and world economies are clicking along normally, Canada usually has a surplus of anywhere from +$50 CAD billion to +$100 CAD billion.
What this means for Canada is that GDP change will have to come from the domestic economy as opposed to the foreign sector for another one or two quarters. Canada did achieve a significant increase in auto exports to the U.S. in December.
However, there is an interesting side-aspect to this. For Canada to export more vehicles to the U.S. there has to also be a large increase in motor vehicle parts imports.
The net effect is for auto sector imports and exports to cancel each other out.
In the U.S., the goods and services trade position with the world fell into larger deficit (-$482 USD billion) in December 2009 versus November 2009 (-$437 USD billion).
The deficit had been as low as -$310 USD billion in May 2009. It has been gradually getting worse since then.
A larger U.S. foreign trade deficit carries mixed messages. It is positive in the sense that it indicates an improving economy. The +5.7% annualized gross domestic product (GDP) growth in last year’s fourth quarter meant the need for more energy imports – from Venezuela, OPEC, Mexico and Canada.
However, the larger the trade deficit the greater the need for counter-balancing capital inflows.
This will eventually exacerbate the interest rate dilemma – i.e. a need to jack them up in order to attract foreign money – posed by the huge balance sheet debts that are being budgeted by Washington for this year and next year.
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