Canada's trade deficit narrows in October, surplus with the U.S. shrinks

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Trade deficit narrowed to C$924 million for October

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Trade surplus with the U.S. lowest this year

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Total exports rose 1.1%, imports were up by 0.5%

(Recasts with data on the U.S., adds comments in paragraphs 9-10)

By Promit Mukherjee

OTTAWA, Dec 5 (Reuters) - Canada recorded in October a bigger-than-expected trade deficit with the world and its surplus with top trading partner the United States fell to its lowest this year, data showed on Thursday.

U.S. President-elect Donald Trump has long complained about the U.S. trade deficit with Canada and last month threatened tariffs on exports.

Canada's overall trade deficit narrowed to C$924 million ($657.60 million) in October, Statistics Canada said. It was Canada's eighth straight monthly trade shortfall, as exports could not overtake imports despite a rise in exports for the first time since June.

Analysts polled by Reuters had forecast a C$790 million deficit in the month. September's trade balance was revised to a C$1.3 billion deficit from C$1.26 billion reported initially.

Canada's trade surplus with the U.S., which buys more than three quarters of Canada's total exports, shrank to C$6.17 billion in October. This is the lowest it has been this year.

Exports to the U.S. fell by 2.8% on a monthly basis and 8% on an annual basis, Statscan said, adding that inbound shipments from south of its border rose 1.1% monthly and 1.9% yearly.

Trump threatened to impose 25% tariffs on all products imported from Canada, the United States' second biggest trading partner after Mexico, until Canada clamped down on drugs and migrants flowing into the U.S.

The threat of tariffs from the U.S. makes it difficult to predict how Canada's gross domestic product will evolve next year.

"The outlook for 2025 is clouded by trade/tariff uncertainty," Shelly Kaushik, an economist at BMO Capital Markets, wrote in a note.

However, she said the overall trade numbers for October were largely neutral in terms of its contribution to fourth quarter growth.

Data last week showed the Canadian economy underperformed the central bank's third-quarter growth forecast, and likely started the fourth quarter with small growth in October.

The Bank of Canada has reduced borrowing costs by 125 basis points since June to 3.75% as inflation eased to its 2% target, but it has grown more concerned about a slowing economy.

The Canadian dollar firmed up after the data and was trading up 0.36% to 1.4024 to the U.S. dollar, or 71.31 U.S. cents. Yields on two-year government bonds were up 4.4 basis points to 3.129%.

Bets for a 50 basis point rate cut have shrunk since last week and currency markets now see just over 35% chance of a bigger rate cut on Dec. 11. A 25 basis point reduction in interest rate is fully priced in.

On an overall basis, total exports rose 1.1% in October while imports were up by 0.5%, Statscan said. ($1 = 1.4051 Canadian dollars) (Reporting by Promit Mukherjee, Ismail Shakil and Dale Smith in Ottawa; editing by Jonathan Oatis)