Canada August trade deficit widens, hitting third quarter growth

Tue Oct 8, 2013 2:40pm EDT
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By David Ljunggren and Louise Egan

OTTAWA (Reuters) - Canada's trade deficit widened more than expected in August as imports soared to a record high, suggesting that exports were still not providing the much-desired boost to economic growth in the third quarter.

The trade deficit climbed to C$1.31 billion ($1.27 billion) as imports grew by 2.1 percent to set a new record and exports rose by 1.8 percent, Statistics Canada said on Tuesday.

The deficit - the 20th in a row - exceeded analysts' forecast of a C$700 million shortfall. Statscan revised July's deficit to C$1.19 billion from an initial C$931 million.

"The Canadian economy is still waiting for that growth rotation into exports," said Doug Porter, chief economist at BMO Capital Markets.

"And, given the U.S. government shutdown and the deepening uncertainty over the fast-approaching debt ceiling limit, no one is holding their breath in anticipation of a quick revival on that front," he said.

Consumers and a housing boom have provided most of the muscle in Canada's economic growth since the 2008-09 recession but policymakers see that as unsustainable and are watching for signs the private sector is taking the lead through greater exports and investment.

A silver lining in Tuesday's trade report was that in volume terms exports and imports rose by 1.5 percent and 1.7 percent, respectively, which will help the monthly gross domestic product figures.

But economists said the weak export performance could shave one percentage point off annualized growth in the third quarter. Scotiabank economists Derek Holt and Dov Zigler said exports were down 4.4 percent on a seasonally adjusted annual rate in the first two months of the quarter while imports gained 2.7 percent.   Continued...