August 6, 2013 / 2:29 PM / 4 years ago

UPDATE 2-Canada June trade gap shrinks, exporters still struggling

* Canada exports rise 1.4 percent, imports up 0.6 percent

* Deficit for first half of year second highest on record

By David Ljunggren

OTTAWA, Aug 6 (Reuters) - Canada's trade deficit in June shrank as exports grew more than twice as fast as imports but the shortfall for the first half of the year was the second highest on record, reflecting the serious challenges exporters face.

The trade deficit - the 18th in a row - dropped to C$469 million ($451 million) from a revised C$781 million in May, Statistics Canada said on Tuesday. Analysts had predicted a deficit of C$500 million.

Canada's export sector, a key driver of the economy, has been hit by weak markets and a strong Canadian dollar. The cumulative trade deficit for the first half of the year was C$4.39 billion, the second highest January-June shortfall on record after the C$4.72 billion posted in 2012.

Both imports and exports had slumped in May and analysts said the June trade figures were unlikely to help boost second-quarter growth data, which are due to be released on Aug 30.

"Net exports are on track to exert a very modest drag on GDP growth in the second quarter. That said, we look for that to turn positive over the balance of the year," TD Securities strategist Mazen Issa said in a note to clients, citing the likelihood of a U.S. recovery.

The Bank of Canada predicted on July 17 that second-quarter growth would be just 1 percent, a forecast several banks think is too pessimistic. First-quarter growth was 2.5 percent.

Exports to the United States, which comprised 74.3 percent of all Canadian exports in June, grew by 1.5 percent, while imports dropped by 0.8 percent.

As a result the trade surplus with the United States advanced to C$3.79 billion from C$3.16 billion in May, the highest since the C$4.20 billion recorded in December 2012.

"Non-energy export volumes remain 14 percent below their peak of 2007, reflecting the impact of lost market share in the United States," said National Bank economist Krishen Rangasamy.

The data helped boost the Canadian dollar which at 10 a.m. eastern (1400 GMT) was at C$1.0380 versus the U.S. dollar, or 96.34 U.S. cents, up from Friday's North American session close of C$1.0390 versus the U.S. dollar, or 96.25 U.S. cents.

Overall June exports grew 1.4 percent to C$39.57 billion, pushed up by higher shipments of unwrought precious metals, passenger cars and light trucks. Volumes grew by 2.1 percent while prices fell by 0.6 percent.

Imports advanced by 0.6 percent to C$40.04 billion on increased shipments of crude oil, crude bitumen and aircraft. Volumes dropped by 0.5 percent while prices grew by 1.1 percent.

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