* Wholesale trade falls sharply in December
* Economy seen shrinking in December; outlook weaker for Q4
* Foreign investors sell Canadian securities for first time
* Foreign appetite for Canadian "safe-haven" debt remains
By Louise Egan
OTTAWA, Feb 19 Canadian wholesale trade shrank
more than expected in December in the latest sign the economy is
sputtering, adding pressure on the government as it seeks to
strike a balance between spending cuts and growth-boosting
measures in its next budget.
Wholesale trade fell 0.9 percent on a reversal of November's
gains in the computer and communications equipment industry,
Statistics Canada said on Tuesday.
Market players surveyed by Reuters had forecast, on average,
a 0.4 percent drop in wholesale activity in the month.
Wholesale trade was down 0.9 percent by volume and
inventories fell 0.6 percent.
The data all but confirms that the economy stalled or even
contracted in December. Exports and factory sales were also weak
and on Friday, Statscan will release retail sales, the final
piece of the puzzle for the month.
"There is little that retail sales can do ... to offset what
is likely to be a minor contraction in industry level real GDP
for December," said Mazen Issa, a strategist at TD Securities.
"This is especially true when taken together against a
backdrop of slowing housing and construction activity," he wrote
in a note to clients.
Most economists agree the Bank of Canada's projection of 1
percent annualized fourth-quarter growth is too high. And with
the weak hand-off from December, the bank's expectation of 2.3
percent first-quarter growth is also under question.
The central bank acknowledged last month that there was more
slack in the economy than it had foreseen and any interest rate
hikes were "less imminent".
The disappointing performance will likely weigh on Finance
Minister Jim Flaherty as he prepares the Conservative
government's 2013 budget, expected in March.
Flaherty has said he sees no need for additional fiscal
stimulus and is undecided whether to increase spending on big
infrastructure projects. He remains committed to eliminating a
small deficit in time for 2015 elections.
The main opposition party, the New Democrats, is urging him
to boost infrastructure spending and delay any further cutbacks
to ensure the economic expansion continues.
"As federal and provincial governments prepare their
budgets, they should invest in needed public services and
infrastructure to spur output and employment," said Erin Weir,
economist and president of the Progressive Economics Forum.
For the first time since June, foreign investors reduced
their holdings of Canadian securities in December, Statscan said
in a separate report that showed portfolio investments were down
by $1.9 billion ($1.9 billion) from November.
Nonresidents unloaded C$6.7 billion worth of Canadian
equities in the month due to cross-border acquisitions and sold
C$655 million in Canadian bonds. They added C$4.8 billion in
But overall, foreign appetite for Canadian debt remained
strong as the country remains a safe haven for investors worried
about U.S budget troubles and uncertainty in Europe.
Charles St-Arnaud, economist at Nomura Global Economics,
said the details of the report were much better than the
headline, after taking into account special factors affecting
equity and flows into some government-guaranteed bonds.
"Once those factors are removed, inflows into Canadian
securities were about C$8.4 billion, higher than the average
over the past 12 months," he said.
"There is evidence that Canadian assets have once again
benefited from some 'safe haven' flows amid the fiscal cliff
In 2012 as a whole, foreigners bought C$83.2 billion in
Canadian securities, down from C$97.3 billion in 2011.