Slump in August imports shows soft Canadian economy

Thu Oct 11, 2012 2:08pm EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada's imports in August dropped by a surprising 3.1 percent from July, suggesting the Canadian economy is struggling to cope with weak international markets and slowing domestic demand.

The fall in imports reported by Statistics Canada on Thursday overshadowed a bigger drop than expected in the trade deficit, to C$1.32 billion ($1.35 billion) in August from a record C$2.53 billion in July. Exports slipped by 0.1 percent.

The trade deficit, the fifth in a row, was smaller than the C$1.90 billion shortfall predicted by market analysts.

The value of imports fell to C$38.79 billion on widespread declines in every sector except energy, while volumes were down 2.2 percent. It was the largest month-on-month fall in imports since the 4.4 percent drop recorded in May 2009.

"That's the big story here. The drop in imports was broadly based and could signal weakness in the domestic economy both in terms of soft consumption and weak business investment," said Scotia Capital economists Derek Holt and Dov Zigler.

"That would fit concerns regarding business confidence heading into a highly active global events calendar including the U.S. fiscal cliff," they said in a note to clients.

The "fiscal cliff" refers to the combination of spending cuts set to take effect on January 2 and tax increases that could seriously dent U.S. growth.

Last week Canada's federal government said its budget deficit last year was slightly bigger than forecast and blamed the economic crisis in Europe as well as a patchy U.S. recovery for a drop in revenues.   Continued...