Canada posts third straight monthly trade deficit in May

By Promit Mukherjee and Ismail Shakil

OTTAWA (Reuters) -Canada recorded a bigger-than-expected trade deficit of C$1.93 billion ($1.41 billion) in May, the third consecutive monthly shortfall, as exports declined faster than imports, data showed on Wednesday.

Total exports fell 2.6% to C$62.45 billion, the lowest level in 10 months, while imports decreased by 1.6% to C$64.37 billion, Statistics Canada said, in what was seen as a broad-based decline in both exports and imports.

Analysts polled by Reuters had forecast a C$1.20 billion trade deficit for the month. The deficit for April was revised to C$1.32 billion from the previously reported C$1.05 billion shortfall.

Canada's international trade is largely skewed towards the United States, its biggest trading partner, which buys more than three quarters of its total exports and accounts for over 60% of its total imports.

Statscan said this was the largest drop ever in exports to the rest of the world, excluding the U.S., since current records began in 1997, helping to swell the deficit.

The drop in exports were "a bit of a fall back to reality," said Stuart Bergman, chief economist at Export Development Canada.

While there is a general softness in the global economy, the large drop in monthly exports in May is on the back of a big gain seen in April when Canada's exports rose by 2.6%, he said, cautioning that the drop should not be construed as a trend.

The decline in exports was led by gold, energy, and aircraft Statscan said. Exports of motor vehicles and parts increased in May, partially offsetting the overall decline.

UNWROUGHT PRECIOUS METALS DROP

Exports of energy products, Canada's biggest export category at close to a quarter of the total, decreased 2.4% in May, largely due to lower prices of crude oil, while export volumes were flat.

Exports of unwrought precious metals, a category largely composed of unwrought gold, saw the biggest drop of 17.1% in May. Gold exports have been volatile in recent months, with fluctuations recorded in both volumes and prices, the statistics agency said.

Exports of aircraft and other transportation equipment also nosedived, posting the second-biggest drop of 11.5% amongst all categories, Statscan said.

The Canadian dollar strengthened with the loonie trading 0.23% stronger at 1.3645 against the U.S. dollar, or 73.29 U.S. cents.

The drop in imports was also driven by gold as well as motor vehicles and parts, and energy products.

Lower imports of passenger cars and light trucks , mainly sport utility vehicles and other light trucks from the U.S., led the decline in the motor vehicles category.

Canada's trade surplus with the U.S. widened to C$8.2 billion from C$7.1 billion in April led by a decline in imports of vehicles. The trade deficit with countries other than the U.S. also widened as exports posted the strongest percentage decrease on record, Statscan said.

The Canadian central bank trimmed its key policy rate for the first time in more than four years last month, and said more cuts would be dependent on inflation continuing to ease towards its 2% target.

But the inflation rate unexpectedly accelerated in May, tempering expectations that the Bank of Canada would cut rates in its next announcement on July 24. Money markets see close to 45% odds of a rate cut this month.

($1 = 1.3675 Canadian dollars)

(Additional reporting by Dale Smith; Editing by Paul Simao and Sharon Singleton)