04/05/2013 08:56 EDT | Updated 06/05/2013 05:12 EDT

Canada Trade Deficit Widens In February As Exports Weaken

OTTAWA - Canada's merchandise trade deficit widened to $1 billion in February, disappointing markets and economists who had been anticipating better economic news south of border would result in the first trade surplus in almost a year.

Instead, exports declined 0.6 per cent — all due to lower volumes — and Statistics Canada also revised downward the January trade deficit to $746 million, almost three times as large as had previously been reported.

Economists had expected a slight surplus based on the better economic signals from the United States, Canada's main trading partner, and by what had been a decline in the value of the loonie in February, which should have provided exporters a helping hand in foreign markets.

Instead, exports to the U.S. fell 1.1 per cent to $28.4 billion, while imports were up 0.8 per cent to $25 billion, lowering the trade surplus with that country to $3.4 billion in from $3.9 billion in January.

Economists were not giving up on the stronger export outlook, however.

"Although the February decrease in exports is somewhat discouraging, export strength is anticipated to gain better traction towards the end of the year as the U.S. still has considerable fiscal drag to deal with in the near term," said TD Bank economist Jonathan Bendiner in a note.

Shipments of motor vehicles and parts did rise 5.6 per cent to $5.4 billion, but exports of energy were soft and metal and mineral products declined by seven per cent, while electrical equipment fell 5.2 per cent.

Overall, exports decreased to $38.5 billion, while imports edged up 0.1 per cent to $39.5 billion, as gains in seven of the 11 import sectors were mostly offset by a large dip in energy products imports.

Exports to countries other than the United States increased 0.9 per cent to $10.1 billion, while imports declined 0.9 per cent to $14.5 billion, shrinking the trade deficit with the rest of the world to $4.4 billion from $4.6 billion the previous month.

Economists said the weakness in exports, particularly as it reflected the volume of shipments rather than prices, was a negative signal for economic output for the month. In another indication of economic softness, Statistics Canada said the country had shed 54,500 jobs in March, as the unemployment rate rose back to 7.2 per cent, where it had been a year ago.

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