Canada trade deficit shrinks, outlook mixed

Wed Aug 12, 2009 10:31am EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada's trade deficit came in at a much smaller than expected C$55 million ($50 million) in June, but analysts said the shrinkage reflected increased energy exports and that underlying trade weakness persisted and will eat into second-quarter gross domestic product figures.

Market operators had on average predicted Canada would run a trade deficit of C$800 million in June after the C$1.1 billion recorded in May.

Statistics Canada said on Wednesday that exports rose for the first time for four months in June, increasing by 2.3 percent to C$29.29 billion on the back of a 14 percent leap in shipments of energy products. Without the energy sector, overall exports would have fallen 0.5 percent.

"The trade sector is shaping up to be a drag on the pace of activity in the second quarter after two solid contributions in the prior six-month period," said Dawn Desjardins of RBC Economics.

"We expect a more moderate negative contribution from net trade in the second half of this year as both export and import demand revives."

In the second quarter, the volume of exports fell by an annualized 19.8 percent, while imports were down 4.8 percent on the same basis.

Adding to a picture of economic weakness, data showed that prices for new houses in June had the biggest year-on-year decline for almost 18 years.

The Bank of Canada last month predicted annualized GDP in the second quarter would fall by 3.5 percent before growing by 1.3 percent in the third quarter.   Continued...

<p>The Canadian flag is seen on top of a flagpole in the midst of high-rise buildings in the financial district of Toronto April 3, 2009. REUTERS/Mark Blinch</p>