Canada posted surprise $972M trade deficit for February

OTTAWA—Canada posted a trade deficit for February, defying the expectations of economists who had predicted a surplus.

Statistics Canada says the country ran a $972-million trade deficit for the month as exports fell and imports edged higher. Economists had expected a surplus of $500 million, according to Thomson Reuters.

The weaker-than-expected data for February runs counter to the robust economic results in the first month of the year.

“After a huge January for the Canadian economy, it looks as though we could be in for some payback in the February data,” wrote Benjamin Reitzes, senior economist at BMO Capital Markets. “Even so, this report is no reason to turn downbeat on Canada, with momentum in so many indicators pointing to strong momentum to start 2017.”

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Exports in February slipped 2.4 per cent to $45.3 billion after reaching a record high in January. The decline included a 10.6 per cent drop in farm, fishing and intermediate food products as well as a 15.2 per cent fall in the export of aircraft and other transportation equipment and parts.

Imports gained 0.6 per cent to $46.3 billion, with motor vehicles and parts rising 1.8 per cent to $9.1 billion — the highest that’s been since the record high set last August.

Canada’s trade surplus with the United States increased to $4.5 billion in February from $4.4 billion in January. The country’s trade deficit with countries other than the U.S. grew to $5.4 billion for February from $4.0 billion the month before.

Exports and business investment have been the Achilles heel of Canada’s economy since oil prices crashed at the end of 2014. Tuesday’s report gives credence to Bank of Canada Governor Stephen Poloz’s view the recent gains may be transitory. Policymakers will release their next interest rate decision and monetary policy report on April 12.

“We expect that tone to resonate at the next meeting,” said Brittany Baumann, a macro strategist at TD Securities. “We still maintain a very cautious view,” she said. “What we really need to see going forward is that pickup in business investment and exports.”

Canada’s economy remains on track for an annualized growth rate of at least 3 per cent in the first quarter, according to Baumann and Nick Exarhos at CIBC World Markets. Gross domestic product climbed 0.6 per cent in January, and February’s full-time employment gain was the biggest since 2006.

The trade report was “one we could stomach after the stretch of figures that we’ve had already,” Exarhos wrote in a research note. Exarhos said the economy grew as fast as 4 per cent in the first quarter on an annualized basis.

The numbers were more positive south of the border, as the U.S. trade deficit narrowed in February to a four-month low, Commerce Department data showed Tuesday. Imports declined and exports improved amid a brighter outlook for global manufacturing.

The gap decreased 9.6 per cent to $43.6 billion (U.S.) from a revised $48.2 billion in January. It compares with $44.6 billion median estimate of economists. The January gap was originally estimated at $48.5 billion.

Merchandise-trade deficit shrank to $65 billion from $69.5 billion. Advance February figures showed $64.8 billion last week.

As the gap shrank in February, global growth prospects were improving, giving U.S. exporters a boost. Exports of goods and services reached the highest level since the end of 2014. The narrowing of the deficit may mean trade will be less of a drag on growth in the first quarter. Fading in dollar strength and a pickup in manufacturing sentiment could be a further boon to trade in the months ahead.

Imports declined in February by the most in nearly a year as demand for consumer goods and automobiles waned.

Just as some analysts attributed January’s deficit in the U.S., the widest in almost two years, to a rush of shipments ahead of the Chinese New Year holiday, the February figure represented a reversal of that effect. China’s own trade data typically show big swings in January and February.

With files from Bloomberg