WRAPUP 1-Canadian economy shows signs of recovery in January

Thu Mar 7, 2013 10:52am EST

* Canada posts best trade performance in 10 months

* Building permits edge up after bad two months

By David Ljunggren

OTTAWA, March 7 (Reuters) - Canada's hard-pressed economy showed signs of recovery in January, when the nation posted its best trade performance in almost a year and building permits eked out modest growth after the biggest two-month fall in 24 years.

Canada is struggling to cope with weak exports, tough competition, uncertain foreign markets and a strong Canadian dollar, which combined to produce a 0.2 percent drop in gross domestic product in December.

Exports grew faster than imports in January, when the trade deficit shrank to just C$237 million ($230 million), Statistics Canada said on Thursday.

The deficit - less than the C$600 million predicted by market operators - represented the best performance since a C$21 million trade surplus in March 2012. Statscan revised December's deficit to C$332 million from an initial C$901 million.

"The improvement in the trade picture, small as it may be, is an important first step for the Canadian economy this year," Francis Fong of TD Economics said in a note to clients. "After an undeniably weak 2012, exports are going to be increasingly looked to as a driver of growth, given that households and government are expected to moderate spending.

"Over the course of 2013 and through 2014, global economic growth should accelerate, particularly in the U.S., and this should provide Canada's export sector with the shot-in-the-arm it needs to post a more sustained recovery."

The data, along with figures that showed a widening trade deficit in the United States, helped push the Canadian dollar slightly higher. By 9.55 a.m. (1455 GMT) it was trading at C$1.0292 to the U.S dollar, or 97.16 U.S. cents. It had closed at C$1.0315 versus the U.S. dollar on Wednesday.

January exports rose by 2.1 percent - the greatest month-on-month increase since the 4.3 percent jump seen in December 2011 - thanks mainly to higher volumes for crude oil and crude bitumen as well as precious metals.

Imports increased by 1.9 percent on higher volumes, mainly due to higher shipments of energy products. Imports of metal ores and industrial machinery also grew.

"Higher imports might suggest more robust domestic activity in the month. What argues against this, however, is that much of the monthly rise in import volumes was due to energy and metal ores. Other key import categories were not as strong," wrote Derek Holt and Dov Zigler, economists at Scotia Capital.

Exports to the United States - which took 74.2 percent of all Canadian exports in January - rose by 2.6 percent while imports were up 2.1 percent. As a result, Canada's trade surplus with the United States increased to C$4.25 billion from C$4.03 billion in December.

Separately, Statscan said the value of Canadian building permits edged up by 1.7 percent in January after posting the biggest two-month fall in almost a quarter century.

The increase, less than the 5.3 percent expected by market analysts, follows revised drops of 10.4 percent in December and 16.5 percent in November.

Canada's booming housing industry, boosted by low interest rates, helped the economy recover from the worst of the 2008-09 recession. In a bid to head off a possible bubble, the government stepped in last year to clamp down on the sector with tighter mortgage rules. This has since cooled the market.

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