May 11, 2011 / 1:01 PM / in 7 years

Trade surplus up, business confidence dips

OTTAWA (Reuters) - Canada’s trade surplus bounced higher in March after two months of declines as broad increases in exports outstripped higher imports, Statistics Canada said on Wednesday.

<p>A partially assembled Chrysler minivan works its way down the assembly line during the production launch of the new 2011 Dodge Grand Caravan's and Chrysler Town &amp; Country minivans at the Windsor Assembly Plant in Windsor, Ontario January 18, 2011.REUTERS/Rebecca Cook</p>

In a separate release, the Conference Board of Canada said business confidence declined slightly in the first quarter from a 10-year high but businesses were still highly optimistic about the near-term future in Canada.

The trade surplus rose to C$627 million ($653 million) in March from C$356 million in February, which was revised higher from an originally reported C$33 million.

Exports rose 3.5 percent to C$37.37 billion and imports climbed 2.8 percent to C$36.75 billion. Both categories had fallen in February. Export volumes were up 2.5 percent and import volumes 3.2 percent, Statistics Canada said.

“The high-flying Canadian dollar doesn’t appear to be dampening enthusiasm for Canadian exports as they grew 14.2 percent annualized (after adjusting for inflation) over the past two quarters, despite the currency pushing through parity (with the U.S. dollar),” BMO Capital Markets economist Benjamin Reitzes said.

The improved trade balance was roughly in line with a prediction of a C$500 million surplus in a Reuters survey of analysts.

The Conference Board’s Index of Business Confidence fell to 106.2 (with a base of 100 in 2002) from a decade high of 109.5 in the final quarter of 2010.

“The drop from the previous period does not indicate any dramatic changes in the business outlook. Respondents remain highly optimistic about the near-term future in Canada,” the Conference Board said.

“One area of ongoing concern, however, is the slow pace of erosion of spare capacity,” it said, noting that only 38 percent of firms were operating close to or above optimal capacity.

Nonetheless, two-thirds reported plans to increase capital spending over the next six months, something that should please Bank of Canada Governor Mark Carney, who has been calling for more investment to boost productivity.

Plans by businesses to invest more were reflected in the March trade numbers. The rise in imports was led by automotive products but was bolstered by imports of industrial goods and materials, and machinery and equipment.

Energy and industrial goods led the gains in overall exports. The biggest rise in exports was to countries other than the United States, with strong gains in precious metal exports to Europe and coal to South Korea.

Canada’s trade surplus with the United States narrowed in March to C$4.83 billion from C$5.01 billion in February, due in large part to higher imports of automotive products.

The Canadian dollar strengthened briefly after the release of the data, and as a parallel release in Washington showed the U.S. trade deficit with the world increasing, but retreated later in the morning.

$1=$0.96 Canadian

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