October 6, 2015 / 12:41 PM / 3 years ago

UPDATE 2-Canada's trade deficit widens in August, exports slump

(A(Adds details, quotes, market reaction))

OTTAWA, Oct 6 (Reuters) - Canadian exports fell by the most in 3-1/2 years in August as cheaper commodity prices took a bite out of the energy sector, although the data did not dispel expectations that economic growth picked up in the third quarter.

Canada’s trade deficit widened to C$2.53 billion ($1.93 billion), data from Statistics Canada showed on Tuesday, handily surpassing the C$1.20 billion deficit economists had forecast. Revisions also showed a bigger deficit for July.

Exports dropped 3.6 percent, the biggest decline since January 2012 as exports of energy products tumbled 14.7 percent. The decline in the sector was almost entirely the result of lower exports of crude oil and crude bitumen, the agency said.

Oil prices have fallen by more than half since last summer. Prices for Canadian energy exports dropped in August, but volumes increased by 2.0 percent.

The drop in oil prices put Canada in a mild recession in the first half of the year, although economists and policymakers expect growth will regain momentum in the second half of 2015.

Economists said the details of the report were not as soft as the headline figure, pointing to a smaller decline in export volumes. It also reinforced expectations the Bank of Canada will hold interest rates steady when it meets later this month after two cuts earlier this year.

“This report reinforces our belief that growth will be solid in the third quarter, with trade providing a big boost,” Benjamin Reitzes, senior economist at BMO Capital Markets, wrote in a note.

Even so, he added, “whether that momentum can be sustained into the fourth quarter remains an open question.”

The Canadian dollar weakened to a session low against the greenback shortly after the trade data but began recouping initial losses and edged higher as market participants digested the details.

Exports of consumer goods fell 8.0 percent, while six of 11 export sectors declined. Overall imports inched up 0.2 percent, the fourth straight month of increases.

Exports to the United States decreased 3.0 percent. Imports from south of the border also declined and Canada’s trade surplus with the United States narrowed to C$2.9 billion from C$3.7 billion in July.

($1=$1.3107 Canadian)

Reporting by Leah Schnurr; Editing by Dan Grebler

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