October 3, 2014 / 12:43 PM / 3 years ago

UPDATE 2-Canada posts unexpected trade deficit as exporters struggle

(Adds analysts’ reaction, Canadian dollar drop, graphic)

By David Ljunggren

OTTAWA, Oct 3 (Reuters) - Canada unexpectedly posted a C$610 million ($545 million) trade deficit in August as exports dropped and imports rose by the largest amount in almost two years to hit a record high, Statistics Canada data showed on Friday.

Market analysts had expected a C$1.55 billion surplus after a revised C$2.20 billion surplus in July.

The figures suggest the export sector, which accounts for around 30 percent of gross domestic product, is still having trouble shrugging off the after-effects of the 2008 recession.

The Bank of Canada says it will not raise interest rates from their current near-record lows until it sees signs of an entrenched economic recovery. The bank is due to make a rate announcement and release updated economic forecasts on Oct. 22.

“This gives plenty of scope for (Bank of Canada) Governor (Stephen) Poloz to remain cautious,” said TD Securities strategist Mazen Issa.

The data, along with stronger-than-expected U.S. jobs growth, pushed the Canadian dollar down to a more than six-month low against the greenback.

The loonie touched a session low of C$1.1244, or 88.94 U.S. cents, its lowest level since late March, down from Thursday’s close of C$1.1163, or 89.58 U.S. cents.

Exports in August dropped by 2.5 percent to C$44.19 billion on lower shipments of motor vehicles and parts as well as energy products. Volumes fell by 1.8 percent while prices dropped by 0.7 percent.

Exports of motor vehicles fell by 11.2 percent but that was because of stronger than expected figures in July, when fewer plants than usual were shut down.

“There’s no sugar-coating the fact that the August trade report was sorely negative,” said BMO Capital Markets economist Robert Kavcic.

“But Canadian trade numbers have swung wildly in recent months, partly because of some seasonal distortions, and it’s probably a bit soon to write off the export recovery,” he said in a note to clients.

Poloz said on Sept. 16 he was cautiously optimistic the export sector was starting to recover as the U.S. economy gained speed but added it would take time for hiring to pick up.

Imports jumped by 3.9 percent, the biggest month-on-month advance since November 2012, to hit a record high C$44.80 billion. Metal and non-metallic products and energy products were mainly responsible for the advance.

Exports to the United States, which took 75.3 percent of Canadian exports in August, dropped by 2.5 percent while imports grew by 1.4 percent. As a result, Canada’s trade surplus with the United States dropped to C$3.51 billion in August from C$4.76 billion in July.

$1=$1.12 Canadian Reporting by David Ljunggren; Editing by Jeffrey Benkoe; and Peter Galloway

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