WRAPUP 2-Canada trade deficit hits record, housing slows

* Trade deficit rises to C$2.74 billion in July

* Housing starts fall more than expected to 183,300 units

* New home prices affected by new tax regime

* Finance minister says concerned about export weakness
(Adds finance minister, analyst’s comments)

By Ka Yan Ng

TORONTO, Sept 9 (BestGrowthStock) – Canada had a record high
monthly trade deficit in July and the housing market stalled,
data released on Thursday showed, signaling sputtering economic
growth as the third quarter got under way.

The weaker data came a day after the Bank of Canada raised
its key interest rate by a quarter point for a third straight
time this year, bringing the rate to 1 percent. But the bank
also cautioned that a weak U.S. economy would hamper Canada’s
recovery. For more see [ID:nN08241537] [ID:nN0898286].

The Canadian dollar (CAD=D4: ) held at three-week highs
against the U.S. dollar on Thursday, despite the soft data,
while bonds stayed lower.

Canada’s trade deficit rose more than three times expected
to C$2.74 billion ($2.66 billion) in July as exports to the
United States sank because of anemic demand, while overall
imports surged to their highest level since November 2008,
Statistics Canada data showed.

The shortfall compared with a deficit of C$810 million that
was forecast by analysts in a Reuters poll. [ID:nN09169238]

Statscan also revised its estimate of the June trade
deficit to C$1.81 billion from C$1.13 billion.

Exports fell 0.7 percent to C$32.80 billion in July,
dragged down by weak demand for machinery and equipment and
forestry products. But analysts were heartened by another jump
in imports, up 2 percent to C$35.54 billion, led by energy
products and autos, and above the forecast of C$34.70 billion.

“If anything, the continued surge in real imports of
machinery and equipment early in Q3 will reinforce the
statement made by the Bank of Canada that sees business
investment rising strongly in the coming months,” said Stefane
Marion, chief economist at National Bank Financial.

“Trade will obviously be a drag on growth in Q3, but it is
a reflection of resilient domestic demand in Canada.”

The Bank of Canada has forecast annualized growth of 2.8
percent in the third quarter, following weaker-than-predicted
2.0 percent growth in the second quarter. The central bank is
expected to update its forecast next month.

Canada’s trade surplus with the United States narrowed to
C$1.2 billion in July from C$2.4 billion in June as the
stumbling U.S. economic recovery reduced demand for Canadian
goods.

“Momentum was already leaning against third quarter GDP
growth, and this month’s deterioration has all but sealed a
very weak Q3 bottom line result,” said Peter Hall, chief
economist at Export Development Canada.

Finance Minister Jim Flaherty said on Thursday he was
concerned by the trade deficit and he called on the private
sector to step up investment. Still, he said the relatively
strong performance of the economy means Canadians have every
reason to be confident despite global economic uncertainty.
[ID:nOLA9KE61O] [ID:nOLA9KE61N]

HOUSING SECTOR SLOWS MORE

Housing starts fell in August for a fourth straight month
and new home prices edged lower in July for the first time in
13 months, demonstrating further slowing in the sector, which
had led the country out of recession.

Housing starts slipped a greater-than-expected 3 percent in
August to a seasonally adjusted rate of 183,300 units from a
downwardly revised 188,900 units in July, Canada Mortgage and
Housing Corp (CMHC) said.

The monthly decline hit both urban single-family homes and
multi-unit dwellings, which fell 3.6 percent and 3.7 percent,
respectively. For more, please see [ID:nN09172795]

Separately, the introduction in July of a new sales tax,
which blends the provincial and federal taxes into one, in
Ontario and British Columbia may have caused monthly declines
in the housing index in those two provinces, Statscan said.

The new housing price index slipped 0.1 percent in July,
against forecasts for a 0.1 percent increase. Home prices rose
0.1 percent in June. For more, please see [ID:nN09173941]

Both housing measures add to months of data that has shown
a less robust housing market, robbing the nation’s economic
recovery of one of its main drivers.

“Cooling housing markets are a big part of why domestic
economic activity is slowing in Canada,” said Pascal Gauthier,
senior economist at TD Bank, adding homebuilding activity was
easing at an orderly pace.

Most industry watchers say the once booming sector will
avoid a U.S.-style crash, however. [ID:nN02189224]

On Wednesday, the Conference Board of Canada was the latest
to add its voice to the debate, saying the next few months will
likely not be “the best in history” for the resale and new
housing markets, but that it was not the start of a steep
downturn.

($1=$1.03 Canadian)
(Additional reporting by Louise Egan, Howaida Sorour, John
McCrank, David Ljunggren in Ottawa; editing by Peter Galloway)

WRAPUP 2-Canada trade deficit hits record, housing slows