UPDATE 2-Canada trade deficit jumps as rail problems cut grain exports

(Recasts leads, adds analyst comment)

OTTAWA, April 5 (Reuters) – Canada’s trade deficit in February jumped to C$2.69 billion ($2.10 billion) from C$1.94 billion in January as rail transport problems slashed exports of wheat and canola, Statistics Canada said on Thursday.

The deficit was larger than the C$2.00 billion shortfall predicted by analysts in a Reuters poll. Canada has only recorded two monthly trade surpluses since October 2014.

Exports grew by 0.4 percent as shipments of motor vehicles and parts rebounded by 5.0 percent following atypical Canadian auto plant closures in January. Exports of aircraft and other transportation equipment rocketed by 19.6 percent.

But exports of farm, fishing and intermediate food products dropped by 17.2 percent, the largest fall on record. Continuing shortages of rail cars in western Canada cut exports of wheat by 41.6 percent and canola by 40.1 percent.

Ross Prusakowski, a senior economist at Export Development Canada, noted the strength in the vehicle and aircraft sectors and predicted the rail issues would last another month.

“We believe March data should be stronger,” he said by phone. In real, or volume terms, exports rose by 0.6 percent.

Imports rose by 1.9 percent on a 15.4 percent surge in shipments of energy products, pushed up by higher demand for crude oil and crude bitumen. Imports of motor vehicles and parts climbed by 1.7 percent as the auto plant shutdowns ended.

The Canadian dollar was little changed on the news. Separately, data released in Washington showed the U.S. trade deficit in February rose to a near 9-1/2 year high.

Paul Ferley, assistant chief economist at Royal Bank of Canada, said the stronger imports showed some strength in the domestic economy.

“But I think indications of growth coming in weaker than expected are going to dampen market expectations of any near-term tightening by the Bank (of Canada),” he said in a phone interview.

The central bank, which has raised rates three times since last July, repeatedly cites uncertainty over the future of the North American Free Trade Agreement as a risk factor for the economy.

Canada sent 75.4 percent of all goods exports to the United States in February and would be hurt if the trilateral agreement collapsed.

Exports to the United States rose 1.9 percent while imports increased by 3.3 percent. As a result, the trade surplus with the United States shrank to C$2.58 billion from C$2.93 billion in January. ($1=$1.28 Canadian)

(Reporting by David Ljunggren, additional reporting by Fergal Smith in Toronto; Editing by Steve Orlofsky and Jeffrey Benkoe)