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Canada Trade Surplus Unexpectedly Narrows on Energy Exports

Canada’s merchandise trade surplus unexpectedly shrank in March as exports fell for the second time in three months and imports reached a record.

The C$79 million ($72 million) March surplus followed a February estimate that almost tripled to C$847 million from an initial C$290 million, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg forecast a March surplus of C$300 million, based on the median of 16 forecasts.

Bank of Canada Governor Stephen Poloz has moved from talking about raising the policy interest rate to being neutral on the direction of the next move, partly due to weakness in exports and consumer-price inflation. The economy’s recovery “hinges critically” on a shift from indebted consumers to exports and investment, which will be aided by a weaker Canadian dollar and rising U.S. orders, Poloz said April 16.

“Trade still has a way to go before it’s going to meaningfully add to growth,”said Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto.

Canada’s dollar extended gains after the report, strengthening 0.5 percent to C$1.0903 per U.S. dollar at 9:54 a.m. Toronto time. Statistics Canada’s report came as the U.S. Commerce Department said the U.S. trade deficit shrank by 3.6 percent to $40.4 billion in March on the biggest export gain in nine months.

Canada’s exports fell 1.4 percent to C$42.7 billion in March, the biggest decline since October, Statistics Canada said. Energy shipments fell 7.9 percent to C$11.2 billion, the first drop after three months of “significant increases,” the agency said.

Higher Imports

Imports rose 0.4 percent to a record C$42.6 billion. The basic and industrial chemical, plastic and rubber product category gained 6.3 percent to C$3.67 billion, and consumer goods rose by 1.7 percent to C$8.62 billion.

“Canada’s merchandise trade balance managed not to tip back into deficit in March,” which should mean a sixth straight quarter where trade contributed to economic growth, Leslie Preston, economist in Toronto at Toronto-Dominion Bank, wrote in a research note. “We expect export momentum to strengthen in the second quarter on stronger U.S. growth, and for business investment to follow suit.”

The volume of exports advanced 0.7 percent and import volumes were little changed, the agency said. Volume figures adjust for price changes and can be a better indicator of how trade contributes to economic growth.

The surplus with the U.S. narrowed to C$3.75 billion in March from C$4.88 billion a month earlier. Exports make up about one-third of Canada’s economy, with about 75 percent of the shipments going to the U.S.

Today’s revision to February’s estimated surplus was led by higher-than-expected natural gas prices, Statistics Canada said.

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