Canada’s trade deficit narrowed in December as both imports and exports declined, according to new data from Statistics Canada.

Merchandise exports were down by 1.2% in the month, led by a drop in energy exports, while imports dropped 1.3%. As a result, Canada’s merchandise trade deficit edged down to $160 million from $219 million in November.

In December, lower oil prices weighed on exports.

“However, real trade flows were more encouraging, and suggest that trade will add meaningfully to fourth quarter growth,” said BMO Economics in a research note.

National Bank Financial Inc. echoed that view: “Now that all the fourth quarter data is out, trade in goods looks likely to contribute positively to GDP growth in the final quarter of the year, with real exports showing little movement and real imports registering a decline.”

The decline in imports in December was led by consumer goods. StatsCan reported that imports dropped in seven of 11 consumer product categories during the month.

“The broad-based weakness includes heightened caution amongst consumers that are adjusting to higher interest rates,” said CIBC World Markets, noting that the trend suggests “domestic demand is softening.”

On an annual basis, merchandise trade finished the year in the black for the second straight year, thanks to surpluses recorded earlier in the year.

Overall, the goods trade surplus widened from $4.6 billion in 2021 to $20.1 billion in 2022, StatsCan reported.

“Looking ahead, export growth could continue as supply chain issues fade, while import growth could be slower as domestic demand weakens,” CIBC said.

Separately, StatsCan reported that the monthly services deficit also narrowed in December, dropping from $1.4 billion in November to $1.2 billion.

“Overall, exports of services increased 1.1% to $14.2 billion, while imports were down 0.6% to $15.4 billion,” StatsCan said.

For the full year, the services deficit widened from $5.7 billion in 2021 to $17.1 billion in 2022, the agency noted, as imports rose by 22.2% and exports were up 14.9%.