Canada’s net exports likely to contribute favorably to economic growth

Canada's January trade deficit broadened to $655 million from December's $631 as imports grew 1.1%, whereas exports rose 1%. In real terms volumes of export grew 3.6%, while import volumes grew 1.6%. Growth in exports was mainly due to 13.7% growth in consumer goods and 7.2% gain in motor vehicles and parts. Both posted gains in export volumes.

However, the gains were slightly countered by a decline of 35% in aircraft and other transportation. Energy exports also dropped 7.7% in January because of lower prices, as volumes grew 7.8%. The growth in imports was broad-based, led by 3.3% rise in motor vehicles and parts and 1.8% growth in consumer goods.

The nation's exports to the US grew 2.6%, whereas imports increased 1.1%. Hence, Canada' trade surplus with the US in January broadened to $3.7 billion. Meanwhile, Canada's exports to the rest of the world fell 3.7%, whereas imports grew 1.1%.

The momentum continued in Canada's export sector in January. Many sectors posted growth in the month. Furthermore, growth in export volumes also accelerated, indicating that the shift toward export-led growth is in process. Moreover, US economic data continues to highlight the strength of consumer there, which is positive for Canada's exports in the future as 75% of its goods are sent to the US.

Exports are expected to gain further in coming months as the Canadian dollar is expected to hover in the 70-75 US cent range. Meanwhile, imports are likely to continue on the weaker side because of the low loonie and weak domestic demand. This implies that net exports are expected to contribute favorably to Canada's economic growth and help the Bank of Canada to keep interest rate unchanged in 2016.