October 5, 2017 / 12:50 PM / a year ago

Canada exports drop again, clouding outlook for October rate hike

OTTAWA (Reuters) - Canada’s trade deficit widened unexpectedly in August as exports fell for the third month in a row, a sign of economic weakness that analysts say could help deter the nation’s central bank from raising interest rates this month.

FILE PHOTO: Cargo ships lie at anchor in English Bay, outside the Port of Vancouver, British Columbia, Canada November 19, 2016. REUTERS/Chris Helgren/File Photo

Statistics Canada said on Thursday that the deficit expanded to C$3.41 billion ($2.73 billion), the fifth-largest on record, from a revised C$2.98 billion shortfall in July. Analysts in a Reuters poll had expected C$2.60 billion.

Exports have fallen 10.6 percent from a high set in May, in part due to a strengthening Canadian dollar. The last time they declined three months in a row was between August and October 2015.

The Bank of Canada, long concerned by sluggish non-energy exports, has raised rates twice this year as the economy has picked up and says further hikes will depend on data. It will next announce a decision on rates on Oct. 25.

CIBC Economics analyst Nick Exarhos said the figures confirmed that growth was slowing in the third quarter and would “translate into a pause in interest rate hikes.”

The Canadian dollar weakened after the release, dropping to C$1.2545 to the U.S. dollar, or 79.71 U.S. cents, from C$1.2478, or $80.14 U.S. cents.

Exports fell by 1.0 percent to C$43.63 billion on lower shipments of consumer goods; chemical, plastic and rubber products; and metal ore and non-metallic minerals. Imports remained virtually unchanged at C$47.04 billion.

BMO Capital Markets senior economist Jennifer Lee said the data cemented her view that the central bank would stay on the sidelines for the rest of the year.

“Exports are going to subtract a lot more from growth than I think many were expecting,” she said in a phone interview.

Export volumes in August fell by 1.9 percent, marking their first consecutive three-month decline since 2011.

Overall exports to the United States, which accounted for 74.8 percent of Canadian goods exports in August, fell by 1.8 percent, while imports rose by 0.9 percent. As a result, the trade surplus with the United States shrank to C$2.31 billion from C$3.18 billion in July.

Export Development Canada Chief Economist Peter Hall blamed part of the weak performance on what he called a “big summer slump” and said the U.S. economy remained strong.

But he added: “This is disquieting. It does fly in the face of what we see in as basic demand conditions.”

Additional reporting by Fergal Smith in Toronto; Editing by Lisa Von Ahn

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