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Container ships are loaded and unloaded at the TSI Terminal Systems Inc at Deltaport in Delta, B.C.

Lyle Stafford/The Globe and Mail

Canada's trade deficit widened to $793-million in May, as imports climbed 0.4 per cent to $39.7-billion on energy products such as crude petroleum ahead of anticipated production shutdowns and maintenance.

On the heels of April's $623-million trade deficit, May represents the second monthly deficit this year, following consistent monthly surpluses earlier in 2012 – a sign of slowdown and weakening demand in the world's major economies, according to figures released Wednesday by Statistics Canada. Exports to the European Union fell 1.5 per cent compared with April, and nudged up slightly by 0.2 per cent to the United States.

Exports as a whole remained flat from April at $38.9-billion in May. Declines in most sectors, especially energy products, were offset by a sizable 8.7-per-cent jump in sales of machinery and equipment. Lower prices and volumes were to blame for a fall in energy exports. Exports of crude petroleum dropped 5.5 per cent over the month to $5.7-billion – the fourth monthly drop since the beginning of the year.

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"May's trade performance is not really good news on either side of the ledger," said Leslie Preston, an economist at Toronto-Dominion Bank, in a note. "Exports continue to be soft as external demand ebbs. Earlier we could point to strength in imports as a sign of a strong domestic economy, but the import trend is starting to look flat also as Canada's economic growth is decidedly modest."

Since the beginning of 2009, Canada's trade position has flip-flopped between monthly deficits and surpluses, whereas consistent surpluses were recorded from May 2007 through to the end of 2008.

Weakening exports look to be a drag on the Canadian economy in the second quarter.

"Indications of a continuation of relative moderate growth in the Canadian economy in the second quarter argue for the Bank of Canada to keep monetary conditions highly accommodative," said Paul Ferley, assistant chief economist at the Royal Bank of Canada.

RBC economists expect the central bank's overnight rate will remain at 1 per cent for the rest of 2012, and then begin to rise to 1.25 per cent in the first quarter of 2013.

Exports to Canada's largest trading partner, the United States, edged up 0.2 per cent to $28.2-billion following four monthly decreases earlier in the year. Imports from the U.S. also rose 1.8 per cent to $25-billion in May. Canada's trade surplus with the U.S. now stands at $3.2-billion.

Canada's international exports were led by $7.3-billion in machinery and equipment in May, or 8 per cent more in volume terms compared with April. This included exports of aircraft, engines and parts, which reached their highest level since December 2010.

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Automotive products led imports in May. Imports of automotive products were up 0.8 per cent to $6.9-billion for their third consecutive monthly increase. Imports of trucks and other vehicles reached a record high of $1.8-billion over the month.

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