(Adds details, background, economist comment, market reaction)
OTTAWA, April 4 Canada swung to an unexpected
trade deficit in February as exports tumbled by the most in
nearly a year, suggesting economic momentum may have hit a speed
bump and giving the Bank of Canada room to maintain its cautious
stance next week.
Following three consecutive months of surpluses, Canada
posted a trade gap of C$972 million ($724 million), Statistics
Canada said on Tuesday, short of economists' expectations for a
surplus of C$500 million. January was revised down to a surplus
of C$421 million from the initially reported C$807 million.
The value of exports fell 2.4 percent, the biggest decrease
since March 2016, with declines widespread. Excluding energy
products, exports were down 2.4 percent.
The Canadian dollar extended declines against the greenback
following the data.
Recent encouraging data had bolstered expectations
first-quarter growth could top the central bank's forecast of
2.5 percent. Economists said growth was still set to beat that.
Nick Exarhos, economist at CIBC Capital Markets, said he was
still expecting growth of about 3.5 percent in the first
quarter, though the trade numbers could weigh on growth in
The Bank of Canada has downplayed the recent
better-than-expected data and Governor Stephen Poloz said last
week the economy has a lot more room to grow.
While the central bank will have to acknowledge some of the
economic outperformance when it meets next week, it will likely
continue to focus on the excess capacity in the economy and
downside risks to the outlook, said Exarhos.
"The Bank of Canada has highlighted we've been here before,
where things have looked good at the start of the year if only
to melt away in the second half," Exarhos said. "They've noted
they're not going to make policy decisions on a short stretch of
The bank is expected to hold interest rates at 0.50 percent.
Exports in the farm, fishing and food products sector
slumped 10.6 percent, with canola contributing the most to the
decline. Exports of aircraft and transportation equipment and
parts fell 15.2 percent, led by a drop in aircraft shipments.
Exports to the United States, Canada's biggest trading
partner, declined 1.2 percent with decreases across categories,
the statistics agency said. Exports to countries other than the
United States fell 5.9 percent, including lower exports to
China, mainly due to the decrease in canola.
(Reporting by Leah Schnurr; Editing by W Simon and Meredith