Canada's balance of international payments, third quarter 2018
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Released: 2018-11-29
-$10.3 billion
Third quarter 2018
Canada's current account deficit (on a seasonally adjusted basis) narrowed by $6.3 billion in the third quarter to $10.3 billion, the lowest level since the end of 2016. This reduction reflected lower deficits on goods, services and investment income.
In the financial account (unadjusted for seasonal variation), higher deposits held by non-resident investors in Canada led the inflow of funds in the economy. Sizeable Canadian direct investment abroad moderated the overall net inflow over the quarter.
Chart 1
Current account balances
Current account
Lower deficit on trade in goods and services
The deficit on international trade in goods and services narrowed by $4.6 billion to $8.0 billion in the third quarter. This was the lowest deficit since the fourth quarter of 2016.
The goods deficit fell by $4.0 billion to $1.7 billion in the third quarter, led by a higher surplus with the United States.
The goods surplus with the United States rose by $3.9 billion on stronger exports. Meanwhile, the deficit with non-US countries edged down $0.1 billion to $16.2 billion. On a country basis, the largest increases to trade balances were with Belgium, Japan and China, while the most important declines were with Hong Kong and Switzerland.
Chart 2
Goods balances by geographic area
Total exports of goods rose by $3.4 billion to $151.5 billion in the third quarter. Major contributors were energy products (+$1.7 billion) on higher crude petroleum prices and metal ores and non-metallic minerals (+$1.2 billion), led by higher volumes of iron ores and concentrates. These increases were partially offset by lower exports of metal and non-metallic mineral products as both volumes and prices were down.
Total imports of goods declined by $0.6 billion to $153.2 billion. Imports of aircraft and other transport equipment and parts were down $1.4 billion with the lowest imports of aircraft in six years. Motor vehicles and parts fell $0.8 billion on lower volumes. Higher imports of electronic and electrical equipment and parts (+$0.8 billion) moderated the overall reduction in the quarter.
International transactions in services also contributed to the lower current account deficit in the quarter. The services deficit narrowed by $0.7 billion to $6.3 billion in the third quarter. The surplus on commercial services increased $0.4 billion—mostly on lower imports of financial services. The travel deficit declined by $0.2 billion to $3.6 billion as Canadian travellers reduced their spending in the United States.
Primary income deficit decreases
The deficit on primary income, which covers investment income on international assets and liabilities and compensation of employees, narrowed by $1.6 billion to $1.7 billion in the third quarter.
Investment income receipts on Canada's international assets rose $2.1 billion to $33.5 billion. Higher receipts on holdings of direct investment assets and deposits abroad by banks were the main contributors.
Investment income payments on Canada's international liabilities increased by $0.5 billion to $34.7 billion. Interest paid to non-residents on Canadian private corporate bonds and deposits at Canadian banks were up. Lower profits earned by foreign direct investors in Canada moderated the overall increase.
Financial account
Outward direct investment strengthens
Direct investment abroad totalled $28.1 billion in the third quarter, the highest level in six quarters. Mergers and acquisitions accounted for the bulk of this activity at $17.9 billion, the highest level since the first quarter of 2017. Nearly half of the overall outward direct investment was in the finance and insurance sector.
Direct investment in Canada was $9.3 billion in the third quarter, up slightly from the previous quarter. Most of the investment in the quarter was from non-US direct investors.
As a result, direct investment abroad exceeded direct investment in Canada by $18.8 billion in the third quarter.
Chart 3
Foreign direct investment
Foreign portfolio investment in Canada remains stable
Foreign investment in Canadian securities totalled $25.6 billion in the third quarter, similar to the levels of the previous two quarters. Compared with the first three quarters of 2017, the pace of foreign investment in Canadian securities has decreased sharply in 2018.
Foreign investors mainly acquired money market instruments and Canadian shares in the third quarter. Acquisitions of Canadian money market instruments reached $11.2 billion, led by government and corporate paper. This followed a $5.9 billion divestment in the second quarter. Meanwhile, foreign investors added $9.5 billion of Canadian shares to their holdings, the largest investment since the first quarter of 2017. Canadian stock prices were up by 1.3% in the quarter.
Foreign investment in Canadian bonds slowed, from $31.0 billion in the second quarter to $5.0 billion in the third quarter. Non-resident investors acquired $6.6 billion of private corporate bonds, the lowest investment in more than three years. A foreign divestment in government bonds moderated the inflow of funds in the quarter.
Canadian portfolio investment abroad increases
Canadian investors strengthened their acquisitions of foreign securities by adding $23.2 billion to their holdings in the third quarter. As has been the case since the beginning of the year, Canadian investors largely favoured foreign bonds over equities during the quarter. Canadian holdings of foreign shares were essentially unchanged, reflecting purchases of non-US shares moderated by sales of US shares.
As a result, portfolio investment generated a net inflow of funds in the economy of $2.4 billion, the lowest in nearly three years.
Chart 4
Foreign portfolio investment
The other investment category generates inflow of funds from abroad
The other investment category of the financial account generated a net inflow of funds of $21.9 billion in the third quarter. An increase in currency and deposits held by non-residents in Canada denominated in foreign currencies contributed the most to this activity.
Note to readers
Revisions
This release incorporates statistical revisions back to the first quarter 2015 as part of the annual revision exercise of the Canadian System of Macroeconomic Accounts. Revisions reflect the integration of new data sources as well as improved methodologies.
With this release, trade in goods data from 1988 are classified according to the North American Product Classification System (NAPCS) 2017. Prior to 1988, NAPCS 2007 was used to classify trade in goods by commodity. Differences between trade values published under NAPCS 2017 and those published under NAPCS 2007 are due primarily to the introduction of new categories, and changes to the concordance used to map values collected under the Harmonized System classification to NAPCS.
Definitions
The balance of international payments covers all economic transactions between Canadian residents and non-residents in three accounts: the current account, the capital account and the financial account.
The current account covers transactions in goods, services, compensation of employees, investment income and secondary income (current transfers).
The current account data in this release are seasonally adjusted. For information on seasonal adjustment, see Seasonally adjusted data – Frequently asked questions.
The capital account covers capital transfers and transactions in non-produced, non-financial assets.
The financial account covers transactions in financial assets and liabilities.
In principle, a net lending (+) / net borrowing (-) derived from the sum of the current and capital accounts corresponds to a net lending (+) / net borrowing (-) derived from the financial account. In practice, as data are compiled from multiple sources, this is rarely the case and gives rise to measurement error. The discrepancy (net errors and omissions) is the unobserved net inflow or outflow.
Foreign direct investment is presented on an asset-liability principle basis (that is, gross basis) in the financial account. Foreign direct investment can also be presented on a directional principle basis (that is, net basis), as shown in supplementary foreign direct investment tables 36-10-0025-01, 36-10-0026-01, and 36-10-0473-01. The difference between the two foreign direct investment conceptual presentations resides in the classification of reverse investment such as (1) Canadian affiliates' claims on foreign parents and (2) Canadian parents' liabilities to foreign affiliates. Under the asset/liability presentation, (1) is classified as an asset and included in direct investment assets, also referred to as direct investment abroad in this text, and (2) is classified as a liability and included in direct investment liability, also referred to as direct investment in Canada in this text.
For more information on the balance of payments, consult the Frequently asked questions section in the System of macroeconomic accounts module of our website. The module also presents the most recent balance of payments statistics.
Real-time table
Real-time table 36-10-0042-01 will be updated on December 10. For more information, consult the document Real-time CANSIM tables.
Next release
Balance of international payments data for the fourth quarter of 2018 will be released on February 28, 2019.
Products
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The Methodological Guide: Canadian System of Macroeconomic Accounts (13-607-X) is available.
The User Guide: Canadian System of Macroeconomic Accounts (13-606-G) is also available. This publication will be regularly updated to maintain its relevance.
Contact information
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To enquire about the concepts, methods or data quality of this release, contact Denis Caron (613-808-2278; denis.caron@canada.ca), International Accounts and Trade Division.
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