WRAPUP 2-Canada record-high current account gap spurs worry

* Q3 current account deficit biggest on record

* Exports fall for first time since Q2 2009

* Producer prices rise on energy

* Growth seen slowing in Q3; interest rates on hold
(Adds background, graphic)

By Louise Egan

OTTAWA, Nov 29 (BestGrowthStock) – Canada entered the club of
countries with oversized current account deficits in the third
quarter, posting the biggest shortfall on record as its
worsening trade profile heralded a further slowdown in economic
growth.

The country’s eighth consecutive quarterly shortfall in the
current account — a measure of transactions in goods, services
and investment income — totaled C$17.54 billion ($17.20
billion), compared with a revised second-quarter gap of C$12.98
billion, Statistics Canada said on Monday.

Analysts surveyed by Reuters had forecast a C$15 billion
deficit. (ECONCA: )

A separate Statscan release showed producer prices and raw
materials prices both jumped more than expected in October due
to higher energy prices.

The deficit in trade in goods swelled as shipments to the
country’s top market, the United States, fell while imports
surged due to businesses bringing more machinery and equipment
across the border.

Analysts estimated the overall current account deficit to
be roughly 4.2 percent of gross domestic product, the highest
level since the 1990s, when the country suffered from soaring
debt, and bigger than the U.S. equivalent figure. Official
third-quarter GDP numbers won’t be known until Tuesday.

“Canada suddenly finds its broadest trade deficit in the
company of countries that have typically been cited as
extravagant over-spenders/under-savers,” said Doug Porter,
deputy chief economist at BMO Capital Markets.

“While this may prove to be a passing phase, it is an early
warning that the country may be living beyond its means,” he
said.
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Graphic on Canada’s current account deficit and exports to

the U.S.: http://r.reuters.com/reb67q
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Canada generally considers itself a surplus country but the
global financial crisis triggered deficits in both its current
account and in the federal government budget, making it look
more like an indebted consumer country than a cash-rich
exporter.

In the days leading up to a G20 summit of the world’s
leading emerging and advanced economies, the U.S. Treasury
proposed capping current account surpluses and deficits at 4
percent of GDP as a way of achieving a better balance between
surplus nations like China and debt-ridden importers like the
United States.

RECOVERY LOSING STEAM

The weak trade performance is expected to bite into
quarterly growth and keep the Bank of Canada from hiking
interest rates for the next several months.

Statscan will release third-quarter GDP figures at 8:30
a.m. (1230 GMT) on Tuesday. Markets expect 1.4 percent growth
at annual rates, according to the median forecast in a Reuters
poll. [ID:nN26127869]

“We anticipate this dynamic will also be reflected in
tomorrow’s release of real GDP growth where we are just below
consensus in anticipating an annualized quarterly growth rate
of 1.3 percent,” said David Tulk, senior macro strategist at TD
Securities.

“More importantly, this forecast is below the Bank of
Canada’s expectation for a 1.6 percent growth rate, which will
keep the bank on the sidelines in December and indeed through
the first half of 2011,” he said.

Markets are pricing in a 94 percent probability the central
bank will not change its benchmark rate on Dec. 7, according to
a Reuters calculation of yields on overnight index swaps.
(BOCWATCH: )

The data kept up pressure on the Canadian dollar (CAD=D4: ),
which edged lower on Monday against the U.S. dollar as
investors warily eyed the weekend rescue package for Ireland.
[ID:nN29243651]

The bright side of Monday’s data was a sign business
investment is on the rise, reflected in purchases of machinery
and equipment.

But anemic U.S. demand for Canadian goods, particularly
crude oil, led to a decline in overall exports for the first
time since the second quarter of last year. As a result, the
deficit in trade in goods bulged to a record C$6.50 billion
from C$2.24 billion in the previous quarter.

The deficit in trade in services was unchanged in the third
quarter at C$5.66 billion, while the investment income deficit
narrowed slightly to C$4.20 billion.

In October, the industrial product price index rose 0.5
percent, beating market forecasts of a 0.3 percent gain and
accumulating a 2.3 percent increase on the year.

Statscan said reduced supply from U.S. refineries helped
boost petroleum and coal product prices in the month by 4.5
percent.

Raw materials prices grew 1.7 percent in the month and 5
percent on the year.

($1=$1.02 Canadian)
(Editing by Jeffrey Hodgson and Peter Galloway)

WRAPUP 2-Canada record-high current account gap spurs worry