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Economy hits pothole as Canada posts surprise trade deficit for February

Canada posts surprise $972M trade deficit

OTTAWA — Canada's economy hit a pothole in February, as an unexpected trade deficit broke up a series of recent positive surprises.

The country ran a $972-million trade deficit in February, following three consecutive monthly surpluses, Statistics Canada reported Tuesday.

Economists had generally expected another surplus — about $500 million, according to Thomson Reuters.

"After a huge January for the Canadian economy, it looks as though we could be in for some payback in the February data," senior economist Benjamin Reitzes wrote in a BMO Capital Markets comment.

"Even so, this report is no reason to turn downbeat on Canada, with momentum in so many indicators pointing to strong momentum to start 2017."

Canada's trade surplus with the United States increased to $4.5 billion in February from $4.4 billion in January. That was offset by a higher trade deficit with other countries. It grew to $5.4 billion for February from $4.0 billion in January.

The run of stronger-than-expected data for January had prompted some observers to upgrade their expectations for Canada's economic growth in the first quarter.

However, Bank of Canada governor Stephen Poloz has remained cautious about how the economy is faring, noting that he's seen good data disappear in the past.

The Bank of Canada is expected to update its economic forecast next week when it releases its monetary policy report and interest rate announcement.

In its business outlook survey released by the central bank on Monday, it noted signs of strengthening domestic demand following overall subdued activity over the past two years.

Canada's exports in February slipped 2.4 per cent to $45.3 billion after reaching a record high in January. The decline included a 10.6 per cent drop in farm, fishing and intermediate food products as well as a 15.2 per cent fall in the export of aircraft and other transportation equipment and parts.

Imports gained 0.6 per cent to $46.3 billion, with motor vehicles and parts rising 1.8 per cent to $9.1 billion — the highest that's been since the record high set last August.

Nathan Janzen, senior economist at Royal Bank, said the pull-back in export volumes in February provide first evidence that the recent outsized gains in GDP came to an end in February.

"Looking through monthly and quarterly data volatility, our view remains that underlying economic activity continues to improve at a modestly above-potential pace as weakness in oil and gas sector investment eases and the rest of the economy continues to grow," Janzen wrote in a report.

Craig Wong, The Canadian Press