Canada’s trade deficit rose slightly in August as imports advanced at a faster rate than exports but analysts said the underlying trend was encouraging and should help the Canadian economy return to growth in the third quarter.
The deficit rose to $622 million in August from a $539 million shortfall in July, Statistics Canada said Thursday. The statistics agency revised the July figure down sharply from the $753 million it initially reported.
Overall exports rose by 0.5% from July, while imports were up by 0.7%, further evidence that the economy is recovering from high oil prices earlier this year and from the impact of the Japanese earthquake and tsunami.
“We expect net exports to contribute to growth in the third quarter. This is consistent with our view that economic growth will pick up modestly in the second half of this year,” said TD Securities strategist David Tulk.
Canada’s economy shrank by an annualized 0.4% in the second quarter as exports provided a significant drag.
Exports in August grew on higher shipments of machinery and equipment, industrial goods and materials. Prices were up 1.6%, while volumes declined by 1.1%
Imports rose by 0.7%, pushed up by a 2.5% increase in machinery and equipment and a 2.3% advance in automotive products. Imports of energy products dropped 13.6% on a 25.3% plunge in crude petroleum prices.
“Net trade looks set to add heavily to (gross domestic product) growth in the third quarter (by roughly two percentage points) after subtracting a whopping 5.6 percentage points from the second quarter result,” said Doug Porter and Jennifer Lee of BMO Capital Markets.
The Canadian dollar, which had already slipped from Wednesday’s three-week high of C$1.0135, or 98.67 U.S. cents, was trading at 1.022, or 97.83 U.S. cents, at 9:50 a.m. (1350 GMT).
Exports to the United States, by far Canada’s top trade partner, fell by 2.3%, while imports were up 2%. The bilateral trade surplus slipped to $2.54 billion from $3.65 billion in July.
Peter Hall, chief economist at Export Development Canada, said he was encouraged by the fact that July’s gains had not proven to be temporary. Export growth in real terms in July was 4.9%, while it fell by only 1.1% in August.
“Most of what we got in July is sticking around and I think that’s very positive news,” he told Reuters.
