September 4, 2014 / 12:38 PM / 3 years ago

UPDATE 2-Canada July trade surplus jumps to near six-year high

3 Min Read

(Adds analyst reaction, Canadian dollar strengthening)

By David Ljunggren

OTTAWA, Sept 4 (Reuters) - Canada's trade surplus in July jumped to a near six-year high of C$2.58 billion ($2.37 billion) in another sign the long-battered export sector could be on its way to a lasting recovery.

Market analysts had expected a surplus of C$1.20 billion. Statistics Canada, which released the data on Thursday, revised June's surplus down to C$1.83 billion from an initial C$1.86 billion.

The July surplus was the largest since the C$2.61 billion recorded in October 2008 and marked the first time since November 2008 that Canada has posted three consecutive monthly positive trade balances.

Exports of goods and services account for around 30 percent of Canada's gross domestic product and are a major driver of the economy.

Canada's exporters struggled since the 2008 recession to cope with weak markets, increasing competition and a stronger Canadian dollar. Policy makers, though, have long predicted that as the U.S. economy strengthens, Canadian exports will recover.

Exports in July rose by 1.4 percent to a record C$45.54 billion, boosted by higher shipments of motor vehicles and parts. Volumes increased by 1.1 percent while prices grew by 0.3 percent.

"This is very good news ... when the volumes actually (grow), that's where the export employment figures start to increase," Export Development Canada chief economist Peter Hall told Reuters.

Hall noted that Canada was on track to post an annual trade surplus for the first time since 2011.

Exports of motor vehicles and parts grew by 9.7 percent, the fifth increase in seven months, as automobile sales hit record highs in Canada and the United States.

The data helped push the Canadian dollar up to C$1.0847 to the greenback, or 92.19 U.S. cents, stronger than Wednesday's close of C$1.0888, or 91.84 U.S. cents.

Imports fell by 0.3 percent to C$42.96 billion, in part due to lower imports of aircraft and other transportation equipment.

The Bank of Canada on Wednesday said that while an increasing number of export sectors appeared to be recovering, the trend would need to be sustained before it resulted in higher business investment and hiring.

The central bank has kept its key interest rate at a near record low for four years and Governor Stephen Poloz - who has repeatedly expressed concern about the export sector - had indicated there is no chance of a hike until the economy picks up speed.

"The July data should give him (Poloz) a little bit more confidence that the rotation to exports has some momentum behind it," said TD Securities strategist Andrew Kelvin.

Exports to the United States, which made up 75.4 percent of Canadian exports in July, grew by 1.9 percent while imports rose by 1.2 percent. As a result, the trade surplus with the United States increased to C$5.14 billion from C$4.85 billion in June.

$1=$1.09 Canadian Additional reporting by Leah Schnurr in Toronto; Editing by Chizu Nomiyama and Meredith Mazzilli

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