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Cargo containers are stacked up as three cranes used to load and unload them from cargo ships tower above at the Port of Vancouver in Vancouver, B.CDARRYL DYCK/The Canadian Press

Canada's trade deficit has widened to its highest level in more than 18 months, underscoring urgent calls by central bank Governor Mark Carney and others for businesses to diversify beyond traditional export markets and move deeper into fast-growing emerging economies.

Canadian exports rose by just 0.2 per cent in June, Statistics Canada said Thursday, outpaced by a 2.3-per-cent increase in imports, leaving a trade deficit of $1.8-billion, the biggest since September, 2010, and the third monthly shortfall this year.

Exports slumped during the recession more than in any downturn since 1951, and have shown the weakest recovery. Late 2011 saw a string of trade surpluses, but lower energy prices and deteriorating economic growth in major markets, particularly the United States, the destination for roughly three-quarters of Canadian exports, has stalled export growth in recent months.

Canadian exports amounted to $39.1-billion in June, well off the six-year high of $44.1-billion before the financial crisis.

The latest figures showed exports to the United States rising by 2.2 per cent, while those to other countries slipped 5.2 per cent, marking the third consecutive monthly decline.

"Spectacular" growth over the past decade from emerging markets contrasts sharply with the roughly 2-per-cent economic growth expected for the United States this year, said Krishen Rangasamy, a senior economist at National Bank of Canada.

"There's a limit to how much export growth can be sustained by just focusing on the U.S. market," he said.

China's economy, for example, expanded by 7.6 per cent in the second quarter, compared to U.S. growth of 1.5 per cent. Emerging market economies have accounted for about two-thirds of global economic growth since the most recent recession.

Mr. Carney has suggested emerging markets be a target for Canadian manufacturers specifically.

"Our manufacturing export share has been cut in half over the last decade because the major growth in manufacturing exports has been in emerging markets, and we're not present," Mr. Carney said in an interview with CTV News aired late Wednesday.

Despite the fact that Canada's share of world exports has been slipping since 2000, and exports are currently growing at a pace well below the global average, some Canadian exporters are following his advice.

"We always want to diversify from the U.S.," said Oren Nutik, president of MDS Power Inc., a power equipment distributor and supplier based in Montreal, who sees opportunities to boosts his sales to Mexico and Latin America. "In general, the long-term prospects of the [U.S.] economy are not looking bright."

Currently, about 75 per cent of MDS Power's sales go to the United States, 15 per cent to Canada, and only about 10 per cent to Latin America. Mr. Nutik said his focus is on boosting that 10 per cent, and begin exporting to Mexico, too.

Still, the vast majority of Canadian exported goods go to the United States, and only 14.9 per cent of all exports in June went to emerging markets such as China, Brazil or Mexico. The rest went to the U.S., Europe or Japan.

Canada is targeting some emerging markets more aggressively than others. Exports to China grew an impressive 26 per cent in the first half of 2012, compared with the same period last year. At the same time, exports to Brazil grew only 2 per cent, and exports to Mexico, 6 per cent. By comparison, U.S. exports to Mexico grew 11.3 per cent over the same period.

One reason American companies have been better able to penetrate emerging markets is their focus on boosting productivity to offset higher labour costs, said Paul Ferly, assistant chief economist at Royal Bank of Canada.

"There's been more aggressive investment in terms of capital inputs, that workers use in the U.S. than in Canada," he said.

One place Canada has had success in emerging markets is in exporting engineering, financial and other services, as opposed to goods.

Mr. Ferley said he recently gave a presentation to an architecture firm that was shifting sales of its services to the Middle East and Asia from its typical North American market.

Whether selling services or goods, the strong dollar and low currencies in some emerging markets is the biggest barrier to Canadian exporters, Mr. Rangasamy said.

With files from reporter Kevin Carmichael in Washington

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