Feb. 11 (Bloomberg) -- Canada unexpectedly recorded its first monthly trade deficit in more than three decades in December as foreign demand and prices for the country’s commodities tumbled.

The deficit was C$458 million ($366 million), Ottawa-based Statistics Canada said today, marking the first trade gap since March 1976. Exports plunged 9.7 percent, the largest drop since 1982.

Canada’s economy is struggling because of weak demand from the U.S., the country’s main market, and slumping prices for commodities such as oil, which generate about half of export revenue. The country is the No. 1 exporter of oil and natural gas to the U.S.

The trade deficit stems from “collapsing commodity prices and the deep dive in U.S. spending, especially on autos,” said Doug Porter, deputy chief economist at BMO Capital Markets in Toronto, who expects the Bank of Canada to lower its borrowing costs by 25 basis points at its next rate decision March 3.

The plunge in foreign sales “is just an incredible decline in a short period of time for any indicator, let alone something as important as exports,” Porter said.

The statistics agency revised its estimate for November’s surplus to C$1.16 billion from an initially reported C$1.28 billion. Economists surveyed by Bloomberg forecast a surplus of C$500 million in December, the median of 17 estimates.

Economy to Contract

The Canadian dollar was trading at C$1.2437 per U.S. dollar at 2:52 p.m. in Toronto, little changed from yesterday.

Bank of Canada Governor Mark Carney yesterday reiterated he may continue a 14-month stretch of interest rate cuts that has brought the policy interest rate to its lowest since the central bank was founded in 1934. Still, the economy will rebound next year as global fiscal packages, a falling dollar and a bounce back in commodity prices lead the country out of recession, Carney predicts.

A weakening currency will help the country’s trade balance in the future, Prime Minister Stephen Harper told lawmakers today, in response to a question on the trade deficit. The Canadian dollar has lost 20 percent of its value against the U.S. dollar over the past 12 months.

“We do expect the change in the value of the Canadian dollar to help that situation,” Harper said today in Parliament.

Canada’s economy will contract by 1.2 percent this year with falling exports shaving 2.6 percentage points off Canada’s growth rate, according to Bank of Canada projections released last month. The world’s eighth-largest economy is forecast to grow at a pace of 3.8 percent in 2010.

Energy Sales Plunge

The December drop in exports was led by a 19 percent plunge in sales of energy products, Statistics Canada said. Crude exports fell 29 percent, mostly due to falling prices. Exports of fertilizer dropped 37 percent during the month while aluminum exports decreased 27 percent, the agency said.

Imports fell 5.7 percent to C$35.8 billion, as consumers curbed demand for automobiles and businesses cut back on purchases of equipment and machinery.

Canada’s trade surplus with the U.S. narrowed to C$3.77 billion, the lowest since 1998, from C$4.6 billion in November.

Canada’s statistics agency said separately that new housing prices fell 0.1 percent in December, falling for a third straight month.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.

Last Updated: February 11, 2009 15:15 EST