May 4, 2016 / 1:37 PM / a year ago

UPDATE 2-Canada March trade deficit widens to record as exports slump

3 Min Read

(Adds analyst reaction, details, Canadian dollar falling)

By David Ljunggren

OTTAWA, May 4 (Reuters) - Canada's trade deficit in March widened to a record C$3.41 billion ($2.69 billion) as exports sank for a second month on weak demand from the crucial U.S. market, Statistics Canada said on Wednesday.

The deficit, far greater than a C$1.40 billion shortfall forecast by analysts in a Reuters poll, came as Canada is already struggling to deal with the prolonged effects of an oil price slump.

Exports to the United States, which accounted for 74.2 percent of Canada's global total in March, fell by 6.3 percent while imports dropped by 4.8 percent. As a result, Canada's trade surplus with the United States dropped to a 22-year low of C$1.53 billion, down from C$2.12 billion in February.

Peter Hall, chief economist at Export Development Canada, described the drop in exports as a concern and linked it to a drawdown in U.S. inventories which he said had cut demand for Canadian goods.

"I wouldn't say this is time to push the panic button but it's time to be alert. This is something that is coming to us squarely from the United States," he said in a phone interview.

The Canadian dollar weakened to C$1.2821 to the U.S. dollar, or 78.00 U.S. cents, down from C$1.2748, or 78.44 U.S. cents, shortly before the release.

The Bank of Canada said on April 20 it could take Canada more than three years to recover from the oil price shock. The central bank is relying on a transition to non-energy exports to help drive the economy.

March exports fell by 4.8 percent to C$40.99 billion, the lowest in more than two years. Shipments declined in 10 of 11 sectors, led by motor vehicles and parts, consumer goods and metal and non-metallic products.

"Certainly as we move through the second quarter the Bank (of Canada) is going to be wanting to see indications of exports rebounding," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

Imports decreased by 2.4 percent to C$44.40 billion, pulled down by lower shipments of consumer goods, aircraft and other transportation equipment.

March marked Canada's 19th consecutive monthly trade deficit. Export prices dropped by 2.9 percent while volumes declined by 2.0 percent. Import prices declined by 2.1 percent and volumes shrank by 0.3 percent.

Statscan revised February's deficit to C$2.47 billion from an initial C$1.91 billion.

($1=$1.27 Canadian)

With additional reporting by Fergal Smith in Toronto; Editing by Bernadette Baum and Meredith Mazzilli

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