Canada July trade deficit shrinks as non-energy sector shines

Fri Sep 2, 2016 9:35am EDT
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By David Ljunggren

OTTAWA, Sept 2 (Reuters) - Canada's trade deficit in July unexpectedly shrank on stronger non-energy exports, a sector the Bank of Canada says is crucial to helping revive an economy hit by low oil prices.

Statistics Canada said on Friday that the July deficit was C$2.49 billion ($1.90 billion), lower than the C$3.25 billion shortfall predicted by analysts in a Reuters poll and below the record C$3.97 billion in June.

Exports jumped by 3.4 percent, the biggest month-on-month gain since last December, on healthy gains in the motor vehicles and parts, metal and non-metallic mineral products and transportation equipment sectors. Volumes rose by 3.7 percent while prices fell by 0.3 percent.

Non-energy exports have been spluttering for several months, prompting concern at the Bank of Canada, which cut interest rates twice last year to offset the effects of the oil slump. The central bank has long been looking for non-resource exports, helped by the soft currency and improving U.S. demand, to offset the commodity price drag.

"The most important thing here is that exports finally snapped their lengthy slump in a meaningful way," said Doug Porter, chief economist at BMO Capital Markets.

"This is definitely a breath of fresh air for Canadian trade."

The Canadian dollar strengthened on the data, rising to C$1.3019 to the U.S. dollar, or 76.81 U.S. cents, up from C$1.3091, or 76.39 U.S. cents before the release.

The Bank of Canada has a rate announcement scheduled for Wednesday. A Reuters poll showed markets see the central bank on hold until 2018.   Continued...