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Canada Third-Quarter Current Account Gap Hits Record on Machinery Imports

Canada’s current account deficit widened to a record in the third quarter as a strong currency pared exports and led companies to boost machinery and equipment imports.

Payments sent abroad exceeded receipts from outside Canada by C$17.5 billion ($17.2 billion) in the July-September period, Statistics Canada said today in Ottawa. The figure exceeded all 16 predictions in a Bloomberg News survey that had a median deficit of C$15.3 billion.

The Canadian dollar has traded for close to parity with the U.S. dollar for most of this year, adding to pressure on exporters from increased competition and uneven global demand. The goods surplus with the U.S., Canada’s biggest trade partner, declined by about C$3 billion for a second quarter, Statistics Canada said.

“We are going to stay in deficit for a long time” probably through 2012, said Krishen Rangasamy, an economist at CIBC World Markets in Toronto. “Our share of exports to the U.S. has gone down quite a bit,” to about 15 percent from 20 percent in 2002, he said.

Canada’s dollar weakened 0.1 percent to C$1.0220 per U.S. dollar at 9:46 a.m. in New York, from C$1.0213 on Nov. 26. One Canadian dollar buys 97.85 U.S. cents.

Goods Deficit

The deficit in traded goods almost tripled in the third quarter, to C$6.5 billion from C$2.24 billion in the second quarter. Goods imports rose to C$106.2 billion from C$102.6 billion, the fifth straight increase, with more than half the rise in machinery and equipment. Goods exports fell to C$99.7 billion from C$100.4 billion, the first decline since the second quarter of 2009.

“We continue to operate our sawmills at approximately 50 percent of capacity and this continues to negatively impact our cost of manufacturing as well,” Michel Dumas, Chief Financial Officer of Tembec Inc., said on a Nov. 17 earnings call.

The deficit in investment income narrowed to C$4.2 billion from C$4.66 billion on higher profits at Canadian-owned companies abroad.

The deficit in services trade was little changed at C$5.66 billion, Statistics Canada said.

The agency increased its estimate of the second-quarter current account deficit to C$13 billion from an initially reported C$11 billion. The current account is the broadest measure of international trade, and has been in deficit for eight straight quarters.

‘Divergence’

“The deterioration in the current account balance reflects the divergence between domestic momentum and subdued foreign demand,” said David Tulk, a senior macro strategist at Toronto- Dominion Bank.

Merchandise trade will subtract 1.9 percentage points from Canada’s economic growth rate this year, and add 0.3 percent in 2011, the Bank of Canada predicted last month.

Statistics Canada will probably report tomorrow that economic growth slowed to a 1.4 percent annualized pace in the third quarter from 2 percent in the previous three months, according to economists surveyed by Bloomberg News.

“With Canada’s economy still fragile, protecting and creating jobs, stability and financial security remain our number one priority,” Prime Minister Stephen Harper said Nov. 26. The country’s unemployment rate was 7.9 percent in October.

In a separate report, Statistics Canada said the industrial product price index rose 0.5 percent in October from September, the fastest in six months. The median estimate in a Bloomberg survey of 13 economists was for a rise of 0.3 percent.

The raw-materials price index advanced 1.7 percent, Statistics Canada said, while the median estimate in a Bloomberg survey of 10 economists was for a 0.9 percent rise.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Christopher Wellisz at cwellisz@bloomberg.net

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