UPDATE 2-Canada trade gap persists but exports climbing

* December trade deficit twice the size expected

* First annual shortfall since 1975

* Trade to hurt Dec GDP growth but contribute in Q4
(Add analysts’, market reaction, details)

By Louise Egan

OTTAWA, Feb 10 (BestGrowthStock) – Canada’s trade deficit in
December was twice the size expected and contributed to the
country’s first annual trade gap since 1975 even though more
goods were sold to the United States in the month.

The December shortfall was C$246 million ($230 million),
up from a revised deficit of C$201 million in November,
Statistics Canada reported on Wednesday. Markets had expected a
C$100 million deficit for December.

The 2009 deficit totaled C$4.79 billion, compared with a
surplus the year before of C$45.9 billion.

The Canadian dollar dropped initially in response to the
trade data as well as to a bigger-than-expected U.S. trade
deficit, but later recovered as markets awaited news on the
euro zone and Greece’s debt.

At about 10:00 a.m. (1500 GMT), the Canadian dollar was at
C$1.0662, or 93.79 U.S. cents, up slightly from Tuesday’s close
of C$1.0679, or 93.64 U.S. cents.

Despite the disappointing December numbers, analysts were
heartened by the continued rise in exports, led by an 8.1
percent jump in automotive products.

“With Canadian exports rising for the fourth consecutive
month in December, it is suggesting that despite the strong
domestic currency, the Canadian economy is beginning to be a
net beneficiary from the recent pick-up in global economic
activity,” said Millan Mulraine, economist at TD Securities.

The appreciation of the Canadian dollar against the U.S.
currency has hampered exports just as they are poised to cash
in on the economic recovery. Net exports will likely subtract
from economic growth in December but economists agree that in
the fourth quarter overall, trade will contribute to robust
growth after an anemic third quarter.

Exports climbed 1.7 percent, driven largely by automotive
sales to the United States, followed by machinery and
equipment, and energy. Exports were still 8 percent below
year-earlier levels.

Imports slightly outpaced exports by growing at a 1.8
percent clip, also led by autos.

The trade surplus with the United States, which buys about
three-quarters of Canadian exports, expanded to C$3.7 billion
from C$3.4 billion in November.

The deficit with the rest of the world widened, however, by
a slightly bigger margin.

“The modest deterioration in the trade balance does not
alter our view that net exports will likely add about a
percentage point to annualized Q4 growth,” said Paul Ferley,
assistant chief economist at RBC Economics.

Ferley sees annualized fourth-quarter growth of 4 percent
for Canada, topping the Bank of Canada’s projection of 3.3
percent but not altering the bank’s commitment to hold interest
rates at a historic low of 0.25 percent at least until the end
of June.

($1=$1.07 Canadian)
(Reporting by Louise Egan; editing by Peter Galloway)

UPDATE 2-Canada trade gap persists but exports climbing