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Canada Has 2nd-Largest Current Account Deficit on Exports

Nov. 29 (Bloomberg) -- Canada’s current account deficit widened to the second largest on record from July through September as exports of goods fell faster than imports, suggesting stresses from weak global demand remain.

The shortfall grew to C$18.9 billion ($19.1 billion) in the third quarter from C$18.4 billion in the previous three months, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg forecast a C$19.2 billion deficit, according to the median of 16 responses.

The gap in Canada’s broadest measure of international trade has widened for four straight quarters, reflecting the toll the slowing world economy has taken on the world’s 11th-largest economy where exports account for one-third of output. Tomorrow Canada will probably report that third-quarter gross domestic product slowed to a 0.8 percent annual pace, according to a Bloomberg survey.

“Exports are still struggling to get back to their former glory,” said Emanuella Enenajor, an economist at Canadian Imperial Bank of Commerce in Toronto.

Exporter confidence has declined on concerns about the global economy and Europe’s debt crisis, Canada’s trade-financing arm said today. Export Development Canada said its index fell to 70.7 from the previous reading of 75.9, based on a survey with 797 responses taken in ‘late September and early October.”

Strong Currency

The deficit in traded goods widened to C$4.84 billion from C$3.64 billion in the third quarter, Statistics Canada said today.

Exports of goods fell C$3.7 billion to C$112.7 billion and imports fell C$2.5 billion from a record high to C$117.6 billion. Energy shipments fell by C$1.6 billion on reduced crude oil sales while consumer goods fell by C$600 million.

Bank of Canada Governor Mark Carney has forecast the slowest recovery in exports since World War II on weak global demand, a strong Canadian dollar and the need for companies to regain competitiveness. He has also said that Canada may draw foreign investment dollars for years to come because of the country’s growing commodity production and stable government finances.

Today’s report shows how a currency supported by foreign capital inflows is weighing on exports, Enenajor said. “The Canadian dollar from a fundamental perspective appears overvalued on the basis of trade,” she said.

Policy Rate

Canada’s currency was unchanged at 99.23 cents per U.S. dollar at 10:07 a.m. in Toronto after gaining earlier to 99.12. It touched 99.06 cents on Nov. 27, the strongest since Nov. 7. One Canadian dollar buys $1.0080. Trading in overnight index swaps signal investors forecast the central bank is unlikely to change its 1 percent policy rate through next year, with 8 basis points of tightening priced in for December 2013.

Canada’s deficit in services widened to a record C$6.28 billion, led by a C$300 million decline in the transportation shortfall.

For investment income, the deficit narrowed to C$6.26 billion from C$7.47 billion, according to the report.

The total third-quarter deficit lags only the C$19.4 billion set in the third quarter of 2010, according to Statistics Canada figures.

“This report is consistent with the theme of an unbalanced economic recovery where a combination of international headwinds and strong domestic demand fueling higher imports has weighed heavily on net exports,” said David Tulk, chief Canada macro strategist in Toronto at Toronto-Dominion Bank’s TD Securities unit.

Raw Materials

In a separate report, the agency also said its index of raw-materials prices paid by manufacturers was unchanged in October. The median estimate in a Bloomberg survey of seven economists called for a 1 percent decrease. Crude oil prices rose 0.5 percent while metal prices declined, the report said.

The industrial product price index, what factories are paid for their goods, fell 0.1 percent in October from a month earlier. The drop compared with a median forecast of a 0.2 percent decline, according to the Bloomberg survey.

In the 12 months that ended in October, industrial prices fell 0.2 percent while raw-materials costs dropped 2.8 percent, suggesting factory profit margins widened.

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; Chris Wellisz at cwellisz@bloomberg.net

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