OTTAWA—Canada's trade gap widened more than expected in May as
non-energy exports fell, indicating that Canadian exporters outside
the oil patch are struggling despite a weaker Canadian dollar and a
strengthening U.S. economy.
Canada posted a trade deficit of 3.34 billion Canadian dollars
($2.64 billion), compared with a slightly revised C$2.99 billion
deficit in April, Statistics Canada said Tuesday. Expectations were
for a trade gap of C$2.50 billion, according to economists at Royal
Bank of Canada.
The disappointing report "only reinforces our conviction for a
Bank of Canada rate cut next week," said Jimmy Jean, economist at
Desjardins Capital Markets. "The trade picture is not improving at
all."
Exports overall fell for a fifth straight month, marking the
longest streak of declines since the global financial crisis.
Notably, non-energy exports declined again after falling in April,
a result sure to disappoint Canadian policy makers hoping sales
abroad of those goods would drive an economic recovery starting
midyear. Canada's economy was hobbled in the first quarter by the
sharp drop in prices for crude oil, its biggest export.
The Canadian dollar touched a new 14-week low versus the U.S.
dollar Tuesday, as the weak trade data, along with falling oil
prices and worries over Greece, contributed to a withdrawal from
the currency.
Mr. Jean said the declines among exporting sectors was
widespread and of significant magnitude. That suggests factory
sales might have declined in May, he added, and provides more
evidence of a possible recession as the economy is likely to have
shrunk in the second quarter.
Meanwhile, the U.S. in May posted its first trade surplus with
Canada in at least 25 years. That country's trade gap with Canada
has narrowed recently because of lower U.S. demand for foreign oil
amid increased domestic production.
Tuesday's trade report was the first major Canadian indicator
for May, and came on the heels of last week's disappointing monthly
gross domestic product report, which indicated the country's gross
domestic product unexpectedly shrank 0.1% in April.
The trade report "epitomizes the challenge the Canadian economy
is facing," said David Tulk, chief Canada strategist for TD
Securities. "You are seeing weakness across the commodity complex,
and you are not getting enough of a positive offset from the parts
of the economy that should be better in here."
Statistics Canada said the value of exports fell 0.6% in May to
C$42.00 billion, the lowest level in 17 months. Export volumes fell
2.5% while prices rose 1.9%. Energy exports rose 1.3%, although
volumes fell 6.5%. Sales of Canadian non-energy goods abroad
declined 1.0% on a 1.2% decrease in volumes.
Canadian imports advanced 0.2% on an increase in volumes and
slightly lower prices.
Prior to the data release, market watchers cast the odds of a
rate cut on July 15, the next policy decision from the Bank of
Canada, at 44%. Those odds, based on trading in the
overnight-index-swap market, climbed to 51% following the trade
report's release, according to Benjamin Reitzes, economist at BMO
Capital Markets.
Eric Morath contributed to this article.
Write to Paul Vieira at paul.vieira@wsj.com
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