Trade deficit narrows to $1.3B

Canada's trade deficit with the world was cut inhalf to $1.3 billion in August, as exports rose and imports declined.

The trade deficit had hit a record $2.7 billion the previous month on surging imports coupled by stagnant exports.

Canada's merchandise exports rebounded somewhat in August, Statistics Canada said Thursday, rising 3.1 per cent to $34 billion after two months of declines.

"Effectively, this reverses the deep deterioration in the prior month," BMO economist Doug Porter said.

Industrial goods and materials and other consumer goods accounted for more than three-quarters of the growth. Export volumes rose 2.9 per cent and have been on an upward trend since May 2009.

"The big story here was a nice (and surprising) snapback in exports, which rose 3.1 per cent (and 2.9 per centin volumes)," Porter said.

Imports declined 0.5 per cent to $35.3 billion, as prices fell 0.8 per cent.

Import volumes, which have been on an upward trend since March 2009, increased 0.3 per cent in August.

The main sectors behind the decline in imports were automotive products and industrial goods and materials.

Exports to the United States rose 2.7 per cent, led by higher exports of passenger autos, while imports fell by 3.3 per cent. Canada's trade surplus with the United States increased to $2.9 billion in August from $1.5 billion in July its first increase since December 2009.

But that surge in auto exportsis unlikely to continue, experts say.

"Iwould really be surprised to see that repeated in September," saideconomist Brian Bethune of IHS Global Insight.

Exports to countries other than the United States grew 4.2 per cent, while imports rose 4.5 per cent. Both gains were largely because of increases in trade with the European Union.

No rebound in international trade

Canada's trade deficit with countries other than the United States rose to $4.3 billion in August from $4.1 billion in July.

Official data is not yet in, but after the Canadian economy advanced 5.8 per cent in the first quarter and two per cent in the second, economists at Canada's major banks expect it expanded by a little more than one per cent in the third quarter of 2010.

Although other aspects of the economy such as jobs and the stock market have rebounded, international trade is one area in which Canada's economy has failed to rebound.

Going forward, exports are likely to remain among the weakest contributors to growth, CIBC economists Krishen Rangasamy and Emanuella Enenajor said in an analysis.

They point out that American consumers are still on their knees, the U.S. housing market is in shambles and the Canadian dollar is again knocking on the door to parity all poor indicators for exporters.

Even with the better results, August exports are still below what they had been in May.

"It's too early to open the champagne bottle and declare the global slowdown over," the CIBC economists write.

"If, as we expect, the U.S. recovery ramps down to sub-two per cent growth in coming quarters, trade will be a drag on the Canadian economy."