Canada Trade Gap Widens to 21-Month High on Machine Imports

Canada’s merchandise trade deficit widened to the most in 21 months in June as purchases of machinery and equipment pushed the value of imported goods to a record high.

Canada posted a C$1.8 billion ($1.8 billion) deficit during the month, according to a report by Statistics Canada in Ottawa today. The deficit was the widest since September 2010 and exceeded forecasts for a C$1.0 billion trade gap, according to the median estimate in a Bloomberg News survey of 21 economists. The statistics agency also raised its May deficit estimate to C$954 million from C$793 million.

The higher imports suggests domestic demand remains buoyant even as the European debt crisis and stagnant growth in the U.S drag down demand for Canada’s commodity exports. Average prices for commodities produced in Canada have drop 6.1 percent since touching a 2012-high on May 2, according to Bank of Canada data.

“I think that’s really the story here, the slow down in global growth and pull-back in commodity prices has undercut exports,” said Doug Porter, deputy chief economist at BMO Capital Markets by phone from Toronto.

Bank of Canada Governor Mark Carney has kept his key lending rate at 1 percent since September 2010, the longest pause since the 1950s, and in July cut his economic growth forecast citing global weakness and the weakest export recovery since World War II.

Dollar Gains

The Canadian dollar appreciated 0.25 percent versus its U.S. counterpart to 99.18 Canadian cents at 10:30 a.m. in Toronto, after Carney said in an interview with the BBC he may need to raise interest rates. One Canadian dollar buys $1.0083.

Exports rose 0.2 percent to C$39.1 billion in June, as automotive product sales rose to the highest since January 2006, helping offset declines in energy and agricultural products. Shipments of crude oil declined 5.3 percent to C$5.6 billion.

Imports rose 2.3 percent to C$40.9 billion as purchases of machinery and equipment also rose to a record $11.2 billion, Statistics Canada said.

The volume of exports rose 1.1 percent and import volumes gained 2.5 percent, Statistics Canada said. Volume figures adjust for price changes and can be a better indicator of how trade contributes to economic growth.

Canada’s trade surplus with the U.S. narrowed to C$3.09 billion in June, the lowest since August 2011, from C$3.23 billion a month earlier as imports from Canada’s largest trading partner reached a record high of C$25.9 billion, Statistics Canada said.

Canada’s trade deficit with countries other than the U.S. widened to C$4.9 billion in June from C$4.2 billion the month before, as exports to the rest of the world fell for the third consecutive month.

In a separate report, Statistics Canada said the country’s new home price index rose 0.2 percent in June, its 15th straight gain, led by higher prices in Toronto.

Economists predicted the index would rise 0.2 percent, according to the median estimate in a Bloomberg survey with 10 responses.

From a year earlier, new home prices increased 2.3 percent in June.

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