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UPDATE 2-Canada slips into trade deficit in April as exports slide
June 4, 2014 / 12:35 PM / 3 years ago

UPDATE 2-Canada slips into trade deficit in April as exports slide

* Canada exports fall 1.8 pct in April

* Imports jump 1.4 pct to new record high

* Trade balance slips into deficit of C$638 mln (Adds comments, market reaction, background)

By Louise Egan

OTTAWA, June 4 (Reuters) - Canada unexpectedly slipped back into a trade deficit in April after two months of surplus, as imports jumped to a record-high and exports fell, a worrying sign for economic growth in the second quarter.

However, the details in the trade balance report, released by Statistics Canada on Wednesday, suggested the weakness in exports could be short-lived as a 10.7 percent drop in energy exports was partly due to refinery shutdowns for maintenance.

The trade gap of C$638 million ($585 million) followed a revised March surplus of C$766 million, disappointing market forecasts for a C$200 million trade surplus in April.

Exports slid 1.8 percent to C$42.83 billion, dragged down by natural gas, refined petroleum products and precious metals.

Shipments destined for the United States, by far Canada’s biggest market, dropped just 0.2 percent while those to the European Union tumbled 22.8 percent.

Overall export prices fell 1 percent in the month and volumes dropped by 0.8 percent.

Imports, on the other hand, shot up 1.4 percent to C$43.46 billion, beating the previous record high set in March and led by consumer goods.

Mazen Issa, economist at TD Securities, said the deterioration of the trade picture was linked to one-off events - maintenance work in the oil sector and a big drop in precious metals shipments to the European Union.

“While startling at first, a closer examination reveals a better backdrop for trade activity,” Issa wrote in a note to clients.

“Trade with the United States remained stable and we expect that continued growth south of the border will help to buoy net exports in Canada over the course of the year,” he said.

The Canadian dollar briefly touched a one-month low after the report and later traded at C$1.0926 to the greenback, or 91.52 U.S. cents, weaker than Tuesday’s close of C$1.0910, or 91.66 U.S. cents.

DELAYED RECOVERY

Canadian exports have disappointed since the global financial crisis, but with signs of a comeback in the U.S. economy and the recent depreciation of the Canadian currency, policy makers are betting that exports will become the main driver of economic growth.

Bank of Canada Governor Stephen Poloz said in April he was more confident of exports strengthening, based on new research by the central bank on the performance of non-energy exports.

Still, there remains a deficit for non-energy exports and that is likely a concern for the central bank, which will make its interest rate announcement Wednesday at 10:00 a.m. (1500 GMT).

$1=$1.09 Canadian Reporting by Louise Egan and Alex Paterson; Editing by Bernadette Baum

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