The overall trade deficit narrowed slightly in May to C$814 million ($839 million) from a revised C$857 million in April.
Exports rose 1.2 percent in the month, outpacing a 1.1 percent gain in imports, powered by aircraft engines and parts, autos and industrial goods and materials such as metals and potash.
The central bank has predicted exports will resume their role as a driver of growth, along with business investment, as economic expansion starts to rely less on consumer spending and housing.
But that shift did not appear to have materialized in May, with analysts warning that exports are not strong enough to help the economy grow faster.
"While this represents an improvement in the month, the data for the quarter as a whole still suggests net exports will be a drag on overall economic activity," said David Tulk, chief macro strategist for Canada at TD Securities.
He said on an annualized basis exports were down 8 percent in May, while imports rose 5 percent.
The Canadian dollar pared losses after the data to trade little changed against the U.S. dollar. The currency The Canadian trade figures were stronger than those in the United States, where the trade gap widened sharply in May to its highest level in 31 months.
Canada's economy is widely expected to have slowed down in the second quarter, perhaps to below the Bank of Canada's projection of 2.0 percent annualized growth, as supply chain disruptions resulting from the Japanese tsunami and global uncertainty took a toll.
The central bank is expected to keep its benchmark interest rate on hold at 1.0 percent at its policy announcement date next week, but may signal plans to hike later this year.
US Surplus Shrinking
By contrast, exports to the European Union, which is negotiating a free trade deal with Canada, surged 15.6 percent and Canada's deficit with all non-U.S. countries decreased.
The Conference Board of Canada said on Tuesday that corporate profitability stalled in July for a second straight month, hit by strength in the Canadian currency and weakness in U.S. demand.
Only 33 of 49 industries covered in the board's leading indicator of industry profitability index reported increases, the lowest number since November. "And that suggests Canadian corporate profitability will see little or no growth over the second half of this year," the organization said in a release.
One of them more bullish details in the trade report was a rebound in imports and exports of autos, which took a hit after the Japanese disaster, as well as a 17 percent jump in imports from Japan following a 30 percent plunge the previous month.
The data signals "the disruption to the global supply chain may be lifting," said Emanuella Enenajor, economist at CIBC World Markets. (Reuters)
Shipments to the United States, by far Canada's top trade partner, inched up by a mere 0.1 percent in May and Canada's trade surplus with the United States shrank.
