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Direction of Canadian trade outlook in question

Cargo is unloaded from a ship in the Centerm terminal in Vancouver.

Jeff Vinnick/The Globe and Mail

Forecasters are all over the map about what to expect from the November merchandise trade numbers being released Friday.

The consensus among economists is that Canada's trade deficit grew to $700-million from $200-million in October.

But at least two forecasters – Stéfane Marion of National Bank Financial and Paul Ashworth of Capital Economics – predict the deficit will shrink to zero.

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A trade surplus adds to GDP growth. A deficit, on the other hand, is a negative.

Both views, however, are based on a common theme: Continuing economic weakness.

In a spite of a strong dollar, Canadians aren't buying much outside the country because the economy is weak at home.

And foreigners aren't buying what Canada makes amid lingering concerns about the U.S. fiscal situation, the European debt crisis and slower growth in China.

The economists who expect the trade gap to widen base their forecast on lower demand for imported goods.

Those who expect the deficit to shrink cite a rebound in energy exports. But Mr. Ashworth added there is "now more of a question mark over which direction Canada's energy exports will move in over the next few years."

The longer term outlook for energy exports is muddied because Canada's main customer – the United States – is ramping up its own production of oil and natural gas, Mr. Ashworth said. Pipeline constraints and low prices also point to "a more modest increase in energy exports," he said.

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Unfortunately, the slump in Canadian crude oil prices in the final few weeks of last year mean that even if the value of energy exports rebounds in November, that improvement could be more than reversed in December," Mr. Ashworth said. The bigger story, according to Bank of Montreal deputy chief economist Douglas Porter, is the weak appetite of Canadian consumers and businesses.

"Canadian imports have been sagging of late, as both consumer spending and – more notably – business investment have lost some zip," Mr. Porter said in a research note. "While the Bank of Canada railed against cash hoarding, and many others cheered companies to take advantage of a strong dollar to buy machinery, businesses had other plans."

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More


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