May 4, 2017 / 12:47 PM / 2 years ago

Canada trade deficit narrows sharply in possible boost to first-quarter GDP

OTTAWA (Reuters) - Canada’s trade deficit narrowed sharply to just C$135 million ($99 million) in March as exports surged to a new high on shipments of energy products, an early sign the first quarter ended strongly.

FILE PHOTO: Cargo ships anchor in English Bay off Stanley Park, outside the Port of Vancouver, British Columbia, Canada November 19, 2016. REUTERS/Chris Helgren

Statistics Canada said on Thursday that the value of exports jumped by 3.8 percent to C$46.98 billion as volumes increased by 2.5 percent and prices grew by 1.3 percent.

Analysts in a Reuters poll had forecast a shortfall of C$800 million. Statscan revised February’s deficit to C$1.08 billion from an initial C$972 million.

The Canadian economy stalled in February after a healthy start to the year, data showed last week.

“A strong first indicator on March GDP suggests there could be some decent momentum heading into the second quarter,” CIBC economist Nick Exarhos said by phone.

The Canadian dollar strengthened slightly to C$1.3716 to the U.S. dollar, or 72.91 U.S. cents, up from C$1.3736, or 72.80 U.S. cents.

Energy products rose 7.0 percent, pushed up by higher natural gas flows to the United States and a spike in exports of coal to Asia that coincided with a slowdown in Australian production caused by a cyclone.

Imports grew 1.7 percent to C$47.11 billion on higher inward flows of metal and non-metallic mineral products, particularly unwrought gold from Japan. Volumes slipped by 0.2 percent while prices advanced by 1.9 percent.

“The increase in imports points to improvements in business investment spending and inventory rebuilding, both contributors to GDP,” National Bank economist Krishen Rangasamy said in a note to clients.

Despite the cheery trade news, challenges may be ahead.

In April, the Bank of Canada lowered its export growth forecast to 2.5 percent over the next three months from around 3.0 percent in January due to the additional drag on global investment from uncertainty over U.S. trade policy.

Shortly afterwards, the U.S. administration slapped tariffs on Canadian exports of softwood lumber and complained about Canada’s dairy sector, helping to sink the Canadian dollar to 14-month lows.

Exports to the United States, which accounted for 73.1 percent of all Canadian exports in March, edged up by 0.1 percent while imports increased by 2.0 percent. As a result, Canada’s trade surplus with the United States slipped to C$3.97 billion from C$4.51 billion in February.

Editing by Bernadette Baum

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