Canada trade deficit grows, imports hurt by Japan

By Louise Egan

OTTAWA (Reuters) – Canada’s trade deficit got bigger in April even though imports dropped on supply disruptions caused by the Japanese earthquake, setting the stage for a slowdown in growth and steady interest rates.

Hurt by slumping exports, the trade deficit in April widened to C$924 million ($943 million) following a deficit of C$417 million in March, Statistics Canada said Thursday.

Statscan revised the March figure after first reporting it as a surplus of C$627 million. An agency official said the changes largely reflected updated data on energy product shipments and pricing.

Analysts surveyed by Reuters had forecast a C$500 million surplus in April.

Canada maintained a surplus with the United States, by far its top trading partner, but that surplus narrowed slightly as imports from the United States hit their highest level in 2-1/2 years.

As separate report Thursday showed Canadian new home prices rose by a sharper-than-expected 0.3 percent in April for a year-on-year gain of 1.9 percent.

The report followed data on Wednesday that showed housing starts were unexpectedly strong in May. Unlike the United States, Canada’s housing sector stayed relatively healthy through the recession but has cooled a bit recently.

The pace of Canada’s economic expansion is widely expected to slow in the second quarter following robust 3.9 percent annualized growth in the first quarter, and the trade report supports that view.

“This report is consistent with international data showing a significant disruption to economic growth in the second quarter,” David Tulk, chief Canada macro strategist at TD Securities, wrote in a note to clients.

The Canadian dollar immediately weakened after the report but later firmed modestly against the U.S. dollar. The currency was at C$0.9755 to the U.S. dollar, or $1.0251, up from Wednesday’s North American finish of C$0.9797 to the U.S. dollar, or $1.0207.

Anticipating the lull in growth, the Bank of Canada has signaled it is in no rush to raise its key interest rate from 1.0 percent and market players widely expect it to sit on the sidelines until September.

“Moderating GDP growth is expected to keep the Bank of Canada cautious in the near term and thus maintaining the currently highly stimulative monetary conditions,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

Exports fell 1.9 percent in April to C$36.3 billion and were down in both volume and value.

Imports declined 0.6 percent to C$37.2 billion as auto imports were hit by the effects of the Japanese disaster.

“The impact of the disruption to the global supply chain caused by the earthquake in Japan has reached Canada,” said Tulk. ($1=$0.98 Canadian) (Reporting by Howaida Sorour and Louise Egan; Editing by Theodore d’Afflisio and Peter Galloway)