REPEAT:MNI DATA ANALYSIS:Canada Goods Trade Adds Downside Risk

Repeats Story Initially Transmitted at 15:04 GMT Apr 5/11:04 EST Apr 5

By Yali N'Diaye

     OTTAWA (MNI) - Canada's goods trade deficit widened to C$2.7 billion in

February from C$1.9 billion in January, deteriorating more than analysts had

expected and adding yet more downside risk to the Bank of Canada's growth

scenario.

     If the central bank is likely to stick to its belief that the growth

pattern is rotating to rely more on exports and investment and less on consumer

spending and housing, Thursday's data, in addition to previous activity data

released in March will at least lead to a growth downgrade for the first

quarter.

     --SUBDUED EXPORTS

     Exports rose just 0.4% in February, owing to a 0.6% gain in volumes, far

from offsetting January's 2.3% drop as volume fell 2.1%.

     Sales abroad would have to regain much traction in March to offset the

weakness in the first two months of the year.

     In addition, much of the export gain in February owed to a rebound in

passenger cars after "atypical plant closures" a month earlier in the auto

sector.

     Excluding the 5.0% gain in autos and parts, exports actually contracted

0.5% in February, including a 0.2% decline in volumes.

     --US REBOUND LIMITED

     Regionally, while sales to the United States, Canada's largest trade

partner by far, rose 1.9% in February, it was not enough to offset two

consecutive months of declines in January (-2.9%) and December (-0.7%).

     With imports from south of the border up 3.3%, Canada's trade surplus with

the U.S. narrowed to C$2.6 billion from C$2.9 billion.

     Meanwhile, exports to non-U.S. countries were down 4.2% despite a 1.8%

increase in sales to China, Canada's second export destination for goods, far

behind the U.S.

     --WATCHING BUSINESS INVESTMENT

     On the import front, there was little encouragement in terms of business

investment activity in Canada.

     Overall imports rose 1.9% in February, including a 1.3% gain in industrial

machinery, equipment and parts. That was far from offsetting the 11.2% drop

recorded in January. In addition, it was more the result of a price effect, as

volumes edged up just 0.2%.

     Such subdued readings do not bode well for the BOC's scenario and

investment activity in Canada.

     --TRADE TENSIONS HOPES

     With subdued exports, NAFTA renegotiations ongoing, and the trade war

between the U.S. and China escalating, at least in rhetoric, the BOC has little

reason to abandon its cautious tone.

     Yet tariffs by the U.S. and China are not scheduled to be implemented

immediately, leaving room for negotiations, while NAFTA talks have taken a

positive turn in light of a more compromising U.S. approach in hopes for a deal

prior to Mexican elections in July and U.S. mid-term elections in November.

     According to media reports, the U.S. administration, turning its focus to

China, would even be targeting a NAFTA deal for the Summit of the Americas on

April 13 and 14 in Mexico.

     Such hopes, if materialized, would be a welcome development for the BOC as

it could encourage Canadian businesses to go ahead with their investment plans,

allowing officials to better assess the underlying strength of investment

activity.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com