An accelerating U.S. recovery is boosting the fortunes of Canadian exporters.
Tax cuts and other measures to speed up the U.S. rebound are having a tangible effect, trade figures show, indicating that the ability of Canadian companies to take advantage of the lucrative American market may not be as undercut by the strong currency and perceived lack of competitiveness as some observers have predicted.
Canadian exporters closed last year with their best month in almost three decades and the biggest trade surplus with the vital U.S. market since the global recession began.
The 9.7-per-cent surge in exports during December, reported Friday by Statistics Canada, put the country's trade balance with the rest of the world into surplus territory for the first time in 10 months, with a cushion of $3-billion. Most significant, a 10.8-per-cent gain in exports to the United States caused Canada's surplus with its No. 1 customer to swell to the widest since October, 2008, just before panic linked to the U.S. financial crisis caused American and global demand to plunge.
Although the boost in exports was partly due to a 25-per-cent increase in energy sales - thanks to a combination of higher oil prices and unusually cold weather in much of the U.S. - the gains were about as broad-based as it gets, including: 9.7 per cent for forestry products; an 8.2-per-cent boost for machinery and equipment; 7.6 per cent for agricultural products and fish; and 7 per cent for industrial goods and materials, to a record level.
At least one forecaster on Friday boosted its projections for Canadian economic growth in the fourth quarter of 2010 as well as for the next two years, and hinted that a return to higher borrowing costs might not be as far off as once thought. Doug Porter, deputy chief economist at BMO Nesbitt Burns in Toronto, said that while his institution is sticking to its call for Bank of Canada Governor Mark Carney to start tightening again in July, an earlier move is now "back on the radar."
"Any time we get this kind of massive move in exports to the U.S. in a single month, usually it's been in the midst of a very strong economic upturn, and there's a lot of threads out there that suggest the U.S. economy is indeed gathering some real momentum," Mr. Porter said in an interview. "That's one of the most important features of this report, in that it is really a compelling piece of evidence that the U.S. economy did kick it into a higher gear late last year."
Marc Pinsonneault, senior economist at National Bank Financial in Montreal, echoed that sentiment, and said the trade figures validated his bank's prediction that the Bank of Canada will lift its benchmark rate In May from the current 1 per cent. Moreover, Mr. Pinsonneault said in an interview, National Bank is forecasting the biggest one-year gain in U.S. final domestic demand this year since 2004, meaning exports to the U.S. of automobiles and other consumer goods that were flat in December will start to pick up too.
After subtracting 2.3 percentage points from Canada's economic growth last year, Mr. Pinsonneault and other economists say trade will likely contribute to the expansion in 2011.
In the United States, while cold weather and lofty oil prices caused U.S. imports to grow at a faster rate than exports in December, American exporters still had their best month since July, 2008, another sign that demand from China and other emerging markets is still on the rise and helping the U.S. rebound. The U.S. trade gap widened to almost $40.6-billion (U.S.).
As for Canada, one month may not make a trend, some analysts cautioned, but the broad, U.S.-centric gains had Peter Hall, vice-president and chief economist at Export Development Canada in a "bit of a party mood."
"Stimulus, plus higher growth in the consumption side and America's success in exporting to the rest of the world have contributed to a momentum in the U.S. that, I believe, Canadian exporters are going to capitalize on," he said. "It's going to be good for overall world growth as well."