UPDATE 2-Canada trade deficit narrows more than expected in Sept

Wed Nov 4, 2015 9:46am EST
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OTTAWA Nov 4 (Reuters) - Canada's trade deficit narrowed more than expected in September, helped by a modest pickup in exports and reinforcing economists' views that the country pulled out of recession in the third quarter.

The trade gap declined to a deficit of C$1.73 billion ($1.32 billion), data from Statistics Canada showed on Wednesday. That topped analysts' expectations for a deficit of C$1.90 billion.

Exports rose 0.7 percent with volumes increasing by the same amount as prices were unchanged. Consumer goods led the way up, while a rebound in prices saw exports of energy products increase.

Momentum in the export sector is key to the Bank of Canada's outlook for the economy. After cutting interest rates twice this year to offset the impact of cheaper oil prices, the bank is widely expected to hold rates at 0.50 percent when it next meets in December.

The drop in oil price over the past year has weighed on the economy, with growth stalling in the first half of the year. But economists and policymakers expect growth resumed in the later half, with trade set to contribute to third-quarter growth.

The report did not alter the view that the Bank of Canada is likely to be on hold for some time. It is not expected to move again on rates until 2017, when analysts foresee a hike.

"It looks like trade is going to add very strongly to third-quarter growth," said Benjamin Reitzes, senior economist at BMO Capital Markets.

While Reitzes expects the Bank of Canada will be satisfied by the growth in non-energy export volumes, "they'll be watching to make sure that progress continues."   Continued...