OTTAWA - Canada's trade deficit with the world expanded to $1.6 billion in June, in a sign of just how slow the economy grew in the second quarter.

The trade deficit for the month, hit by a drop in energy and automotive exports, compared with a $1-billion deficit in May, Statistics Canada reported Thursday.

"Problems facing Canadian exporters have clearly been too much: a persistently strong Canadian dollar, weak U.S. demand, and Japanese supply disruptions, to name a few," "The export sector is clearly in no position to take on the responsibility of being the major driver of growth going forward and it appears that economic growth in the coming quarters could be weaker than originally anticipated.

Statistics Canada said merchandise exports fell 1.7 per cent in June, while imports were off 0.2 per cent.

"Given the recent financial turmoil hammering global markets in recent weeks, the Bank of Canada is likely to view today's news as additional support to keep monetary policy accommodative for an extended period of time,"

The trade surplus with the United States slipped to $3.6 billion in June from $3.7 billion in May and the trade deficit with countries other than the United States grew to a record $5.2 billion in June from $4.8 billion in May.

Exports fell to $36.5 billion, while merchandise imports fell to $38 billion.

Exports to the United States declined 2.4 per cent to $26.5 billion, while imports fell 2.3 per cent to $22.8 billion.

Have I got this right, 'so we export energy and import merchandise. It sounds like we've managed to export one more thing as well: the value-added jobs that make the economy run.' Way to go, free-traders! At this rate, we'll be a Third World country in no time.

Peter Hall, chief economist for Export and Development Canada, noted there were a number of disruptions in the first half of the year for Canadian exports, including those caused by the Japanese earthquake and tsunami's effect on the automotive sector.

"So some of the slowdown in momentum that we're seeing at the moment is not a demand problem, it is a supply problem," However Hall said he will be watching carefully to see if the economy does indeed rebound from the factors that constrained growth in the first half of the year or if the financial chaos forces consumers and businesses to stop spending in the back end of 2011.

"We're really at a point of decision at the moment. It is a point of consumer and business decision, what are they actually going to do,"
"Will they lose more confidence or will they see through this."

Imports from countries other than the United States for the month increased 3.1 per cent to a record high of $15.2 billion. Exports to countries other than the United States edged up 0.3 per cent to $10 billion.

Exports of energy products fell 5.1 per cent to $8.7 billion, as both volume and prices dropped. Automotive exports fell 5.3 per cent to $4.5 billion.

Shipments of agricultural and fishing products declined 2.3 per cent to $3.2 billion.

Industrial goods and materials exports increased 0.9 per cent to $9.5 billion on the strength of metals, alloys and chemicals, plastics and fertilizers. The increases were partly offset by reduced exports of metal ores, mainly nickel ores, concentrates and scrap.

Energy imports declined 11.7 per cent to $4.2 billion, with both volumes and prices down. Imports of industrial goods and materials declined 0.5 per cent to $8.2 billion.

Machinery and equipment imports rose for a fourth consecutive month, rising 2.5 per cent to $10.6 billion.

Imports of other consumer goods increased 2.1 per cent to $5.0 billion driven mainly by clothing and shows.