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Canada Q2 Current A/C Deficit Widens

Canada Q2 Current A/C Deficit WidensCanada Q2 Current A/C Deficit Widens

Canada’s current account deficit widened in the second quarter of the year as the country’s international trade gap in goods expanded as imports rose, data from Statistics Canada showed on Wednesday.

The seasonally adjusted current account deficit stood at C$16.3 billion ($13 billion) in the second quarter, short of economists’ forecasts for a C$17.4 billion gap. The first quarter was revised to show a deficit of C$12.9 billion from the initially reported C$14.1 billion, Reuters reported.

Higher imports increased the trade deficit in goods to C$5.2 billion. Canada’s trade gap with countries other than the United States rose to C$15.6 billion, while its surplus with the United States narrowed to C$10.4 billion after three consecutive quarters of increases.

Total goods exports rose to C$143.3 billion in the quarter, helped by motor vehicles and parts as exports of passenger cars and light trucks increased. Shipments of metal and mineral products also lifted overall exports.

Imports rose to C$148.5 billion, making for the largest quarterly increase in nine years on widespread gains throughout the commodity sectors. Imports of consumer goods also rose on higher prices, while imports of car parts saw a record increase.

Meanwhile, the Bank of Canada estimates the nation’s economy can’t grow much beyond 1.4% before fueling inflation. In other words, Canada may be entering an era of slow growth and rising interest rates, which is not exactly a dream scenario for policy makers.

“There is no way around it,” said Perrault, “Two percent is not high compared to history, but it is compared to trend.”

In addition, fiscal stimulus may no longer be needed in an economy with no slack and low potential growth as it can accelerate rate increases and crowd out private players.

 

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