Canada Current Account Gap Widens in Second Quarter on Lower U.S. Exports

Canada’s current account deficit widened in the second quarter because of lower exports to the U.S., the country’s largest trading partner.

Payments sent abroad exceeded receipts from outside Canada by C$11 billion ($10.5 billion) in the April-June period, the seventh straight quarterly deficit, Statistics Canada said today in Ottawa. Economists predicted a C$10.7 billion second-quarter deficit, according to the median of 15 estimates taken by Bloomberg News.

“Real GDP data released tomorrow will likely come in far weaker than many had originally anticipated given the downside risk posed by the widening trade deficit,” Francis Fong, an economist with Toronto-Dominion Bank, said in a note to clients.

Statistics Canada will probably report Aug. 31 that the economy grew at a 2.5 percent annualized pace in the second quarter, according to the median forecast of 18 economists surveyed by Bloomberg News.

Trade will subtract 1.6 percentage points from Canada’s economic growth rate this year, the Bank of Canada predicts. The economy will grow 3.5 percent in 2010 as consumption and government spending lead a recovery from a recession last year led by falling U.S. orders for lumber and automobiles.

“The weakness in global demand does not bode well for the improvement in net exports that was necessary to offset the slowdown in consumer spending expected in the near-term as highly indebted Canadian households take a breather after driving most of the economic recovery,” Fong said.

Goods Deficit

The Canadian currency weakened 0.3 percent to C$1.0544 at 10:53 a.m. in Toronto, compared with C$1.0508 on Aug. 27. One Canadian dollar buys 94.84 U.S. cents.

Canada recorded a C$1.28 billion deficit in traded goods in the second quarter, compared with a C$1.17 billion surplus in the prior three-month period, Statistics Canada said today. Goods exports rose C$1.2 billion to C$100.9 billion on higher shipments of automotive products, and imports gained C$3.7 billion to C$102.2 billion.

The deficit in services trade widened to C$5.57 billion in the quarter from C$5.26 billion, Statistics Canada said, and the deficit in investment income narrowed to C$3.46 billion from C$4.33 billion.

The agency increased its estimate of the first-quarter gap to C$8.46 billion from an initially reported C$7.82 billion. The current-account deficit reached a record C$13.8 billion in the third quarter of 2009.

Policy Interest Rate

The current account is the broadest measure of international trade. The flow of money coming into or leaving Canada suggests changes in demand for the Canadian dollar.

Bank of Canada Governor Mark Carney may raise his key lending rate on Sept. 8 by one-quarter point for a third time since June, to 1 percent, a majority of economists forecast. In raising the policy rate to 0.75 percent on July 20, the Bank said further increases would have to be “ weighed carefully against domestic and global economic developments.”

In a separate report, Statistics Canada also said the industrial product price index gained 0.1 percent in July from June. The median estimate in a Bloomberg survey of 11 economists was for a rise of 0.4 percent. The raw-materials price index advanced 1.8 percent, Statistics Canada said, while the median estimate in a Bloomberg survey of 9 economists was for a 0.2 percent rise.

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.

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