Canada’s merchandise trade surplus with the world shrank to $2.4 billion in December, its lowest level in nine years, as exports declined and imports edged up.

Exports fell 3.1% to $36.7 billion as only the energy products sector recorded gains, Statistics Canada said today.

Imports inched up just 0.7% to $34.3 billion.

StatsCan said energy products were the main factor behind the gain in imports, which offset a decline in automotive products.

The surplus with the United States narrowed to $6.1 billion, the second-lowest level in 2007.

At the same time, the trade deficit with countries other than the United States expanded to $3.8 billion, the largest deficit since August 2006.

For 2007 as a whole, Statistics Canada said the country’s trade surplus with the world narrowed from $51.3 billion in 2006 to $49.7 billion, the lowest level since 1999.

“Canada’s trade position is finally deteriorating noticeably amid the one-two hit to exports from the lofty loonie and sagging U.S. spending,” said Douglas Porter, deputy chief economist at BMO Capital Markets, in a morning note. “Meantime, import growth continues to forge ahead amid still-solid domestic spending. This combination points to an even deeper drop in the trade surplus in 2008 and the likely return of current account deficits in Canada for the first time this decade. Goodbye twin surpluses.”

Economists at TD Economics say a mild depreciation in the loonie over the next couple years and the eventual recovery of the U.S. economy coupled with expansion of trade outside of the U.S. will help matters. “While Canada’s trade balance is likely to continue to trend lower in 2008 – especially through the summer – this is as much a reflection of strong Canadian demand as it is the pressures on export-oriented industries,” said TD senior economist Richard Kelly, in a commentary.

South of the border, the U.S. trade deficit narrowed sharply in December despite a record foreign oil price, shrinking to a gap smaller than expected as overseas sales rose and imports receded.

The U.S. deficit in international trade of goods and services decreased by 6.9% to US$58.76 billion from November’s unrevised $63.12 billion, the U.S Commerce Department said today.

The December deficit was smaller than expected by Wall Street. Economists had estimated a US$61.70 billion shortfall.

For all of 2007, the U.S. ran a trade deficit of US$711.6 billion, US$46.9 billion less than the 2006 deficit of US$758.5 billion.

U.S. exports in December climbed 1.5% to US$144.32 billion from US$142.15 billion. Imports decreased by 1.1% to US$203.08 billion from US$205.27 billion.

The U.S. deficit with China was US$18.79 billion, down from November’s US$23.95 billion. The deficit with Japan shrank to US$6.59 billion from US$7.13 billion.

The trade gap with the euro area decreased to US$6.12 billion from US$8.33 billion. The U.S. gap with Mexico declined to US$6.51 billion from US$7.57 billion.