Sept. 9 (Bloomberg) -- Canada’s trade deficit unexpectedly widened to a record in July as exports to the U.S. fell, government figures showed, adding to evidence the country’s economic recovery is being crimped by its southern neighbor.
The deficit widened to C$2.74 billion ($2.66 billion) in July, the biggest gap since the agency’s records began in 1971, from a revised C$1.81 billion gap in June, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg predicted the deficit would narrow to C$800 million from an initially reported June gap of C$1.13 billion, according to the median of 15 estimates.
The figures suggest international trade this year may be more of a drag on the economy than initially forecast. The Bank of Canada predicted in July trade will shave 1.6 percentage points from Canada’s growth this year. Yesterday, the central bank raised its benchmark interest rate for a third time this year to 1 percent, saying it expects households and businesses to spend even as the outlook for the U.S. economy weakens.
“It’s obviously a disappointment,” said Mark Chandler, head of Canadian fixed-income and currency strategy at Royal Bank of Canada in Toronto, the nation’s largest lender. “It’s starting to become a bit of a concern. We need improving terms of trade and improving commodity price and stronger U.S. domestic demand to start to turn this thing around.”
Trade cut 3 percentage points from the annual rate of growth in the second quarter, and the continued weakness may lead the central bank to cut its forecast for economic expansion in October from the current 3.5 percent, Chandler also said.
Canada’s trade surplus with the U.S., its largest trade partner, narrowed to C$1.17 billion in July from a revised C$2.4 billion the prior month.
“We are concerned about some weakness in exports,” Finance Minister Jim Flaherty told reporters today in Kitchener, Ontario. “The good news is, and I can say this because the data is starting to show increased investments in Canada in machinery and processing equipment, business investment is starting to come back in Canada.”
Imports of machinery and equipment rose 1.3 percent to C$9.81 billion in July and have gained 6 percent since the same month a year ago.
The Canadian dollar traded at 1.0346 per U.S. dollar at 2:18 p.m. in Toronto, 0.3 percent stronger than late yesterday. One Canadian dollar buys 96.67 U.S. cents.
Exports to all countries dropped 0.7 percent in July to C$32.8 billion. Exports of forestry products were down 5.3 percent and machinery and equipment sales fell 1.9 percent. Exports of energy products dropped 0.8 percent, while shipments of “other consumer goods” fell 7.3 percent. The volume of exports slid 0.6 percent, while prices fell 0.2 percent.
Imports rose in July, gaining 2 percent on purchases of energy products, which advanced 12 percent. Automotive imports to Canada gained 2.9 percent, the statistics agency said. Prices for imported goods rose 0.6 percent, while volumes of Canadian purchases of goods abroad advanced 1.4 percent from June, the agency said.
Debunking bubble economies - Canada pt2
So much for the export and natural resource driven economy and all the other rationalization nonsensical explanations you find for Canada's real estate bubble and the strength of its economy: