Canada's merchandise trade balance Wednesday returned to surplus for the first time in 10 months in December, with exports growing at a much faster pace than imports, noted National Bank of Canada.

The rise in international shipments was mainly due to two factors, said the bank. The first was a marked increase in the price of energy products (+6.0%), particularly crude oil (+9.0%), which enabled exports in this segment to reach their highest level in two years at C$16.0 billion.

As the United States is the main destination for Canada's energy exports, it was no surprise to see the trade surplus with the U.S. reach a 30-month high of C$11.3 billion, pointed out National Bank. Whether this is good news from the point of view of Canada's negotiations with the new U.S. administration is another matter.

The second factor behind the sharp rise in exports in December was the desire of many Canadian businesses to move their shipments ahead of the possible imposition of tariffs by the U.S., stated the bank. This same desire was probably also behind the rise in imports, as some of Canada's U.S. trading partners probably feared the imposition of retaliatory measures by Ottawa.

The study of trade volumes on a quarterly basis suggests that international trade will make a positive contribution to gross domestic product growth in Q4 2024, with exports (+10.6% annualized) growing at a higher rate than imports (+9.2%), added National Bank. The decline in import volumes in the machinery equipment category (-5.9% annualized), meanwhile, suggests business equipment spending declined further in the quarter.

For 2024 as a whole, the Canadian goods trade balance showed a C$7.2 billion deficit, the largest shortfall in four years but still smaller than what National Bank had been accustomed to in the years preceding the COVID-19 pandemic. Crucially, the goods trade balance with the U.S. narrowed a bit, moving from C$108.3 billion to a three-year low of C$102.3 billion.