UPDATE 2-Canada trade deficit jumps as weak markets hit exports

Fri Jan 11, 2013 10:50am EST

Related Topics

* Imports rise 2.7 percent, exports fall 0.9 percent

* Data confirms problems facing export sector

* Trade deficit is fourth highest on record

* Analysts say U.S. demand should increase

By David Ljunggren

OTTAWA, Jan 11 (Reuters) - Canada's trade deficit jumped unexpectedly in November as imports rose and exports fell, a sign that challenging market conditions are likely to have cut into fourth-quarter economic growth.

Statistics Canada said on Friday that November's deficit was C$1.96 billion ($2.00 billion), up from C$552 million in October.

The deficit, the fourth-largest on record, was much greater than the C$600 million shortfall markets had expected and reflects the continuing problems that exporters face in weak foreign markets and a strong Canadian dollar.

"The trade data was definitely disappointing although this does reiterate a well-known theme that net exports will drag on Canada's economy. We do expect that the picture should brighten somewhat in 2013," said David Tulk, chief Canada macro strategist at TD Securities.

"For the time being this is ... still describing a world of elevated uncertainty and slowing growth momentum," he told Reuters.

Imports rose 2.7 percent on higher shipments of electronic and electrical equipment, in particular cellular phones, as well as motor vehicles and parts. Volumes grew 2.2 percent from October.

Exports dropped 0.9 percent on lower demand for farm, fishing and food products and metal and non-metallic mineral products. Volumes rose 0.4 percent from the previous month.

Benjamin Reitzes of BMO Capital Markets noted that exports were 6.3 percent below year-before levels, the worst performance in three years, while imports were flat.

"It looks as though trade might be a net drag on growth again, putting some downside risk on our call for 1.2 percent growth in the fourth quarter," he said in a note to clients.

The Bank of Canada's most recent forecast calls for 2.5 percent growth, annualized, in the fourth quarter.

Canada's currency slipped to C$0.9835 versus the greenback, or $1.0168, after the data was released from around C$0.9830, or $1.0173, immediately before. A simultaneous release showed the United States also had a larger than expected trade deficit in November.

Peter Hall, chief economist at Export Development Canada, noted that the United States - Canada's main trading partner - was recovering from Hurricane Sandy in November. At the same time, market uncertainty over the so-called U.S. "fiscal cliff" was starting to mount.

"The global business cycle is still on the up and up. These numbers were interrupted by the temporary factors that got in the way of the production process," he told Reuters.

But he added: "This is clearly not an upbeat report, and adds further uncertainty because we're still saying 'The most likely outcome is for this to pick up'. We're still in the business at the moment of justifying why the numbers are weak based on temporary factors, and I think the world's getting a little weary of being perpetually in that state."

Exports to the United States, which took 75.5 percent of all Canadian exports in November, rose 3.9 percent, while were up by 1.7 percent. As a result, Canada's trade surplus with the United States increased to C$3.34 billion from C$2.69 billion in October.

Exports to countries other than the United States fell by 13.4 percent to C$9.21 billion, the lowest level since September 2010. Imports rose 4.6 percent to C$14.51 billion, resulting in a record deficit of C$5.30 billion in non-U.S. trade.

FILED UNDER: