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Canada Trade Deficit Nears Record, U.S. Exports Drop

Canada’s trade deficit widened more than economists predicted in September, almost matching a record set two months earlier, as exports to the U.S. fell and imports reached the highest level in 22 months.

The deficit widened to C$2.49 billion ($2.48 billion) in September, Ottawa-based Statistics Canada said today, while raising its estimate for the August gap to C$1.49 billion from an initial report of C$1.34 billion. Economists surveyed by Bloomberg predicted a September deficit of C$1.6 billion, according to the median of 22 estimates.

The deficit was a record C$2.51 billion in July as a sluggish global economy and a stronger Canadian currency pared exports and boosted imports. The Bank of Canada said last month the economic recovery will depend more on exports and investment as government stimulus and consumer spending wane. The bank forecast trade would lower the economic growth rate by 1.9 percentage points this year and boost it 0.3 point next year.

Trade “is weighing heavily” on the recovery, said BMO Capital Markets economist Benjamin Reitzes by telephone from Toronto. “Because domestic demand is strong you are getting a big pull in imports and U.S. growth remains lackluster so exports really aren’t the growth engine they can be.”

Slowing Growth

Canada’s economic expansion probably slowed to a 1.5 percent annualized pace in the third quarter from 2 percent in the second, with trade a drag of 3 percentage points, Reitzes said.

The Canadian dollar climbed 0.3 percent to C$1.0052 per U.S. dollar at 10:54 a.m. in Toronto, compared with C$1.0080 yesterday, when it traded at par with the U.S. dollar for a third day. One Canadian dollar buys 99.59 U.S. cents.

Exports to the U.S. tumbled 3.6 percent in September on fewer shipments of passenger vehicles, the lowest since November 2009, Statistics Canada said. Overall exports fell 1.7 percent to C$33.1 billion. The volume of shipments, which removes the effect of price changes, was 2.2 percent lower while the prices received for exports rose 0.5 percent.

Canada’s total imports rose 1.2 percent to C$35.6 billion, the highest since November 2008. The gains were led by the two largest categories, a 5.6 percent increase for industrial goods and materials, and a 3.2 percent rise for machinery and equipment. The volume of imports grew 0.1 percent while import prices rose 1.1 percent, the agency said.

The trade surplus with the U.S., Canada’s largest trade partner, narrowed to C$1.61 billion in September from C$2.85 billion the prior month.

The U.S. trade deficit narrowed more than forecast in September as a drop in the dollar pushed exports to the highest level in two years, Commerce Department figures showed today in Washington. The gap shrank 5.3 percent to $44 billion, smaller than the $45 billion median estimate of economists surveyed by Bloomberg News.

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