July 3, 2019 / 4:08 PM / 17 days ago

UPDATE 3-Canada posts surprise trade surplus in sign of economic recovery

(Recasts first paragraph, adds analyst comment, background)

By Kelsey Johnson

OTTAWA, July 3 (Reuters) - Canada reported a surprise trade surplus in May, its first in almost a year, official data showed on Wednesday, in another sign the nation’s economy is recovering following a recent slowdown.

Statistics Canada reported a surplus of C$762 million ($582 million) - the first trade surplus since July 2018 and only the second since December 2016. The surge was fueled by rising exports of motor vehicles, aircraft and energy products.

Analysts in a Reuters poll had forecast a trade shortfall of C$1.50 billion.

Statscan revised April’s deficit to C$1.08 billion from an initial C$966 million.

“May’s international trade data joins a suite of other data releases confirming that the Canadian economy is recovering from the soft patch seen in late 2018 and early 2019,” said Omar Abdelrahman, economist for TD Economics.

The Canadian dollar strengthened as much as 0.3% to 1.3064 to the greenback, or 76.55 U.S. cents, approaching a near eight-month high reached last week.

“The Canadian economic data just continues to outperform despite the increasingly dour global backdrop,” BMO Capital Markets strategist Benjamin Reitzes said.

The trade numbers follow stronger-than-expected employment and GDP figures. The Bank of Canada, which has stayed on the sidelines following five interest rate hikes between July 2017 and October 2018, has said it is watching economic data closely as it ponders future moves.

Total exports in May rose 4.6% to a record C$53.1 billion. Exports of motor vehicles were up 12.4% to C$8.4 billion, thanks to increased shipments of passenger cars and light trucks after Canadian production increased.

“It’s an excellent sign of the recovery in Canadian trade and we think this dramatic about face is probably likely to persist given what we’ve seen in the underlying data,” Ross Prusakowski, principal economist at Export Development Canada, said in a phone interview.

Exports of boats and other transportation equipment almost quadrulped in May in part because of higher demand for light armored vehicles from Saudi Arabia. Aircraft exports jumped 40.2% because of increased shipments of business jets and commercial aircraft, particularly to the United States.

Riyadh last August had announced a ban on new trade with Canada after Ottawa urged the release of jailed Saudi rights activists. While the armored vehicle sales contracts predated that ban, in a sign tensions might be easing, government agency Export Development Canada said on Tuesday it had resumed helping Canadian firms wishing to export to Saudi Arabia.

Exports of energy products rose 5.0% in May to C$10.8 billion, including a 2.8% jump in crude oil shipments, mainly on higher prices.

Canada sent nearly 74% of all its goods exports to the United States in May. Exports to the United States rose by 3.7% to a record C$39.3 billion, while imports dropped by 0.5%.

As a result, Canada’s bilateral trade surplus widened to C$5.9 billion in May from C$4.4 billion in April - the largest surplus since October 2008.

($1=$1.3097 Canadian)

Reporting by Kelsey Johnson, Additional reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto. Editing by Dale Smith, Chizu Nomiyama and Bill Berkrot

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