Canada's trade deficit biggest in a year in December

Thu Feb 6, 2014 12:04pm EST
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By Randall Palmer and Leah Schnurr

OTTAWA/TORONTO (Reuters) - Canada's trade deficit jumped to the highest level in a year in December, a government report showed on Thursday, the latest in a series of disappointing economic figures that are expected to keep the Bank of Canada from raising interest rates this year.

Separate data that showed a rebound in the pace of purchasing activity in January offset some of the initial gloom generated by the trade report and helped the Canadian dollar regain some ground after an early fall.

The trade deficit widened to C$1.66 billion ($1.49 billion), data from Statistics Canada showed, with the value of imports hitting a record high despite a drop in volumes.

The deficit was almost C$1 billion more than economists had expected and the biggest since November 2012. Last November's gap was also revised sharply higher to C$1.53 billion from an originally reported C$940 million.

"No doubt about it, the fourth quarter was a setback for Canada's export sector, with trade expected to weigh on economic growth," Leslie Preston, economist at TD Bank Group, wrote in a note.

The trade sector's performance in the final quarter of last year is inconsistent with improved economic momentum in the U.S. economy and indicators of production in Canada, Preston said.

"Therefore, the fourth quarter should prove a temporary setback, and Canada's export sector is expected to be a growth driver in 2014 as stronger U.S. demand lifts exports."

Despite a big drop in the Canadian dollar over the last few months, the Bank of Canada said recently that the currency is still strong and that its strength still poses an obstacle to exports.   Continued...

Buildings are seen in the financial district in Toronto, January 28, 2013.REUTERS/Mark Blinch