Trade deficit widens to $3.3B in May, 2nd highest ever

Canada's exports to the rest of the world fell in May while the country imported more than it did the month before. As a result, Canada's monthly merchandise trade deficit grew to $3.3 billion, the second-highest level ever, Statistics Canada reported Tuesday.

Economists had been expecting a deficit of about $2.5 billion.

The biggest monthly trade deficit came in March, when the country imported $3.6billion more goods than it exported.

Analysts said the larger-than-expected deficit figure boosts the odds of the Bank of Canada cutting its key interest rate next week by a quarter of a percentage point.

"The May trade data supports our view that the Canadian economy is struggling," said TD senior economist Randall Bartlett in a morning commentary. "Today's trade release works to reinforce our view that the lacklustreperformance of the Canadian economy will provide the needed push to trigger a rate cut."

Loonie tumbles

A lower overnight lending rate would tend to lower the value of the Canadian dollar something that would help manufacturers and other exporters.

The loonie was downmore than a third of a cent at the close of trading, at 78.67cents US.

Statistics Canada said exports fell 0.6 per cent from Aprilto $42 billion, while imports rose 0.2 per cent to $45.3 billion.

Canada exported less to other countries, the federal agencysaid. The volume of exports dropped 2.5 per cent in May, following two straight monthly increases.

The country shipped far fewer mineral products and metal ores, with major declines recorded in exports of copper, potash, and other metal ores and concentrates.

Onthe plus side, exports of motor vehicles and parts rose, as did aircraft and other transportation equipment and parts.

Trade surplus with U.S. narrows

Imports rose in May because we brought in more consumer goods, precious metals, and basic andindustrialchemical, plastic and rubber products. Imports of industrial machinery and parts fell. Altogether, imports in seven of 11 sectors increased.

Canada continues to have a trade surplus with the U.S., but the surplus narrowed slightly in May to $2.1 billion from$2.3 billion in April.

But Canada'strade deficit with countries other thanthe United States widened from $5.3 billion in April to $5.5 billion in May. Exports to China and the United Kingdom eachfell by more than $300 million.

As for the U.S., the Commerce Department reported that the U.S. trade deficit grewslightly in May, reflecting declines in sales of American-made aircraft and machinery. Exports continued to suffer from the rising value of the U.S. dollar.

The U.S. trade deficit widened2.9 per cent in May to $41.9 billion US, up from an April imbalance of $40.7 billion.