May 6, 2014 / 12:43 PM / 4 years ago

UPDATE 2-Canada trade surplus plummets as exports continue to struggle

* Exports drop by 1.4 percent, imports up 0.4 percent

* Two consecutive surpluses for first time in over 2 years (Adds reaction, details)

By David Ljunggren

OTTAWA, May 6 (Reuters) - Canada’s trade surplus plummeted to just C$79 million ($72 million) in March from C$847 million in February as the long-suffering export sector showed little sign of permanent recovery.

March exports fell by 1.4 percent to C$42.7 billion on lower shipments of energy products, Statistics Canada said on Tuesday.

Imports edged up 0.4 percent to a record high C$42.6 billion on higher shipments of chemicals and plastic and rubber products.

The surplus was less than the C$130 million forecast by analysts. Statscan revised the February surplus sharply higher from an initial C$290 million to reflect the fact that natural gas prices were higher than it had initially estimated.

“Today’s numbers still leave the quarter looking fairly miserable overall ... the impact from trade on GDP should be fairly neutral,” Scotiabank Economics Vice President Derek Holt said in a note to clients.

Since the end of the recession, Canada’s exporters have struggled with weak markets and a stronger Canadian dollar.

Bank of Canada Governor Stephen Poloz - who has long complained that weak exports are holding back the economy - said last month he was more hopeful than before about a recovery fueled in part by a U.S. rebound.

But Canada has yet to see the full effects of a stronger U.S. economy, and the central bank, noting weak export performance and inflation that is lower than expected, said its next interest rate move could be a cut.

“The soft start to the year suggests that the overarching theme of a rotation towards net exports remains slow. This could provide some wiggle room for the Bank of Canada to continue to sound cautious,” TD Securities strategist Mazen Issa said in a note to clients.

Although the March figure was lower than expected, Canada has now posted two consecutive surpluses for the first time since November and December 2011.

The Canadian dollar hit a session high of C$1.0912, or 91.64 U.S. cents, shortly after the data was released, helped by a weaker U.S. dollar. The loonie closed Monday at C$1.0952, or 91.31 U.S. cents.

Issa and other analysts, noting U.S. demand at the beginning of the year had been depressed by a harsh winter, expressed confidence Canadian exports would start to recover steadily.

“We expect exports, and net trade, will provide a support to growth going forward, benefiting from an improving U.S. economy and the weaker Canadian dollar,” said RBC economist Nathan Janzen.

Exports to the United States, which made up 75.4 percent of all Canadian exports in March, dropped by 2.5 percent while imports rose by 1.0 percent. As a result, the trade surplus with the United States dropped to C$3.8 billion in March from C$4.9 billion in February.

$1=$1.09 Canadian Reporting by David Ljunggren; Editing by Sofina Mirza-Reid and Bernadette Baum

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