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Winnipeg Free Press - PRINT EDITION

Global instability blamed for Canada's bigger total trade deficit

By: Julian Beltrame

Posted: 06/1/2012 1:00 AM | Comments: 0

OTTAWA -- Canada's economy is showing signs of succumbing to weakening global conditions as the country's total trade deficit widened in the first quarter in the face of weaker external demand.

Statistics Canada reported Thursday the country's current account deficit widened by $600 million to $10.3 billion in the first quarter due to a smaller export surplus in goods and a bigger deficit in services.

And analysts predict the gross domestic product report today will show the first quarter also disappointed with sub-two per cent growth, well below the Bank of Canada's 2.5 per cent call.

Desjardins Securities economist Jimmy Jean is even gloomier, predicting growth of 1.5 per cent and with exports trouble looming for the second quarter as well.

The March current account deficit, which includes merchandise, services and investment activities with the rest of the world, was actually slightly better than predicted.

But economists note Canada appears to be making little headway in eliminating the overall deficit, which appeared during the recession and is now running at an annualized $41.1 billion, or 2.3 per cent of gross domestic product.

"Globally things are worsening meaningfully," said Benjamin Reitzes, a senior economist with BMO Capital Markets.

"We're still having trouble recovering from the great recession and until things pick up globally, the U.S and from a commodity perspective, it's going to be tough for Canada to pull out of this current account deficit."

The March gap was due to a smaller merchandise trade surplus, as previously reported, combined with a larger services deficit.

Thursday saw little to cheer about on the global front.

In the U.S., Canada's largest trading partner, the Labour Department reported weekly applications for unemployment benefits rose for the fourth straight time. Meanwhile, a private-sector survey showed hiring in May added a mere 133,000 jobs.

Also Thursday, the U.S. Commerce Department said the U.S. economy's growth rate in the first quarter was only 1.9 per cent, not the 2.2 per cent initially reported.

Canada announces its first-quarter report on gross domestic product today and economists are almost united that the Bank of Canada forecast of a 2.5 per cent boost will not be met.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition June 1, 2012 B10

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