Canada's export woes shrink current account surplus

Canada's current account surplus shrank more than expected in the second quarter, reflecting export weakness that is slowing the rate of economic growth, according to a report by Statistics Canada on Wednesday.
The surplus fell to C$4.19 billion ($3.77 billion) from a downwardly revised C$8.18 billion in the first quarter as the trade surplus decreased by C$3.8 billion in the period. Analysts had expected weaker exports to squeeze the current account balance to a lesser extent, and they had forecast, on average, a surplus of C$6.66 billion.
"The balance is the smallest in three years and reflects a deterioration in volumes and terms of trade that was telegraphed from the monthly merchandise trade figures," said Mark Chandler, senior market economist at Scotia Capital.
"However, we saw slightly more deterioration in the services and investment income balance than was expected." But any negative impact on the Canadian dollar was offset by US data showing a smaller-than-expected upward revision to second-quarter growth and by lofty oil prices. The dollar was steady at C$1.1075 to the US dollar, or 90.29 US cents.
Statscan said exports shrank C$2 billion in the second quarter as car exports hit their lowest level since 1998, although that was partially offset by higher crude oil prices. The surpluses in the previous two quarters were boosted by higher prices of natural gas, which receded in the second quarter. Canadian exporters have been hurt by a 40 percent appreciation of the Canadian dollar against the US dollar over the past four years.
Economists expect the lower exports to slow second quarter growth to about 2.2 percent annually, down from 3.8 percent in the first quarter. Second-quarter figures are due on Thursday.
"While Canada's underlying trade position continues to deteriorate, the balance on the non-merchandise side is not improving as much as previously believed. Suffice it to say that this is not a winning long-term combination for the Canadian dollar," said Doug Porter, deputy chief economist at with BMO Capital Markets.