OTTAWA (Reuters) - Canada posted a near-record trade deficit of C$2.97 billion ($2.40 billion) in April as both imports and exports fell in another sign of challenges facing the economy, Statistics Canada data showed on Wednesday.
Traders had expected a shortfall of C$2.10 billion. The deficit, the seventh in a row, was the second largest on record after the C$3.85 billion recorded in March.
Canada is a major energy exporter and the economy, which has been hit by the sharp drop in oil prices over the past year, experienced its biggest contraction in nearly six years in the first quarter.
The government and the Bank of Canada are confident that the economy should improve as the effects of the oil shock wear off and the U.S. economy rebounds from its own first-quarter contraction.
Canada’s central bank says the recovery depends in part on non-energy exports, which were a disappointment in April. Overall exports fell by 0.7 percent, the fourth straight monthly decline, pulled down in part by a 6.0 percent plunge in consumer goods.
The value of energy product exports grew 5.9 percent as an 8.3 percent rise in volumes outweighed a 2.2 percent drop in prices.
The Bank of Canada, which cut interest rates in January and has since left them unchanged, is due to make its next rate announcement in July. Markets do not expect another cut.
“There is much more work left to be done for the Bank of Canada to feel comfortable that the non-energy sector will offset weakness in business investment. This dynamic will force the Bank to sound more cautious heading into their July meeting,” TD Securities strategist David Tulk said.
The disappointing data briefly pulled down the Canadian dollar, which dropped to C$1.2508 to the U.S. dollar, or 79.95 U.S. cents, from C$1.2455, or 80.23 U.S. cents, just before the release. It later recouped most of its losses.
Imports dropped by 2.5 percent on lower shipments of consumer goods and metal and non-metallic products.
Export Development Canada chief economist Peter Hall said Canada’s economy would improve as the U.S. economy recovered.
“Some of the May data that’s coming in ... is substantiating that they’re back on their feet,” he said in an interview.
Exports to the United States, which accounted for 76 percent of Canada’s global total in April, grew by 1.6 percent, while imports dropped 1 percent. Canada’s trade surplus with the United States rose to C$2.42 billion from C$1.62 billion in March.
Reporting by David Ljunggren; Editing by Bernadette Baum and Paul Simao