Canada's balance of international payments, second quarter 2018
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Released: 2018-08-29
-$15.9 billion
Second quarter 2018
Canada's current account deficit (on a seasonally adjusted basis) narrowed by $1.6 billion in the second quarter to $15.9 billion. A lower deficit on trade in goods more than offset higher deficits on trade in services and investment income in the quarter.
In the financial account (unadjusted for seasonal variation), strong foreign investment in Canadian private corporate bonds led the inflow of funds in 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 $2.2 billion to $12.3 billion in the second quarter, the lowest deficit in a year.
The goods deficit fell by $3.3 billion to $5.3 billion in the second quarter, led by a higher surplus with the United States.
The goods surplus with the United States rose by $3.4 billion, mostly on stronger exports. Meanwhile, the deficit with non-US countries widened by $0.1 billion to $16.3 billion. On a country basis, the largest improvements to trade balances were with China, Hong Kong and Switzerland, while the most important declines were with United Kingdom and South Korea.
Chart 2
Goods balances by geographic area
Total exports of goods rose by $8.1 billion to $148.0 billion in the second quarter. Exports of energy products were up by $1.6 billion on higher crude petroleum volumes. Forestry products (+$1.4 billion), metal and non-metallic minerals (+$1.3 billion) and consumer goods (+$1.3 billion) also contributed to the increase in exports in the quarter. The second quarter of 2018 was the first quarter that Canadian exports of steel and aluminum products to the United States were subject to tariffs, as they took effect on June 1.
Total imports of goods were up $4.8 billion to $153.3 billion. Imports of basic and industrial chemical, plastic and rubber products were the main contributor, increasing by $1.1 billion on higher volumes.
Meanwhile, the deficit on trade in services expanded by $1.1 billion to $7.0 billion in the second quarter. The surplus on commercial services decreased by $0.7 billion, mostly on higher imports of financial services. This was in line with a higher volume of cross-border trading in foreign securities as well as increased new issue activity abroad by Canadian corporations in the quarter. The travel deficit expanded by $0.2 billion to $3.9 billion as Canadians spent more abroad in the quarter. The transport deficit also went up by $0.2 billion due to higher imports of marine transport.
Primary income deficit increases
The deficit on primary income, which covers investment income on international assets and liabilities and compensation of employees, widened by $0.3 billion to $2.8 billion in the second quarter.
Investment income payments on Canada's international liabilities increased by $2.2 billion to $34.9 billion in the quarter. Larger profits earned by foreign direct investors in Canada, combined with higher interest paid on Canadian private corporate bonds and from banking activities, were the main contributors to the increase.
Investment income receipts on Canada's international assets rose $1.9 billion to $32.6 billion. Receipts on holdings of portfolio and direct investment assets were both up while interest receipts from banking activities also increased.
Financial account
Foreign portfolio investment in Canada focuses on private corporate bonds
Foreign investment in Canadian securities totalled $23.7 billion in the second quarter, up slightly compared with the first quarter. The investment activity mainly targeted the Canadian bond market. Foreign acquisitions of Canadian bonds reached $28.6 billion, largely new issues of private corporate bonds denominated in foreign currencies. This activity was moderated by a foreign divestment in federal government bonds. The Canadian dollar depreciated against its US counterpart by 1.6 US cents in the quarter.
Foreign investors withdrew $5.9 billion of funds from the Canadian money market in the quarter, following a strong investment in the first quarter. Investors mainly reduced their holdings of federal government and private corporate paper. At the same time, they added $917 million of Canadian equities to their holdings, the lowest investment since the third quarter of 2015. Foreign investment in Canadian shares have totalled $6.7 billion since the beginning of the year, compared with $47.1 billion for the two first quarters of 2017.
Chart 3
Foreign portfolio investment
Canadian portfolio investors target foreign bonds
Canadian investors acquired $16.0 billion of foreign securities in the second quarter, down from $19.4 billion in the first quarter. Canadian investors purchased foreign debt securities and reduced their holdings of foreign shares during the quarter.
Canadian investment in foreign debt securities reached $20.6 billion, the highest investment since the fourth quarter of 2015. Acquisitions of US Treasury bonds and non-US foreign bonds contributed the most to the investment activity.
Canadian investors reduced their holdings of foreign shares by $4.6 billion, reflecting sales of US shares, moderated by purchases of non-US foreign shares. Canadian investment in foreign shares have totalled $3.0 billion since the beginning of the year, compared with $34.3 billion for the same period in 2017.
Outward direct investment outpaces inward direct investment
Direct investment abroad reached $21.7 billion in the second quarter, up from $7.1 billion in the first quarter. Over half of this activity was in the form of profits reinvested by Canadian direct investors in their foreign affiliates. Cross-border mergers and acquisitions activity remained low in the quarter. Almost two-thirds of the investment was directed toward the United States. Mergers and acquisition activity in the first half of the year totalled $8.0 billion. In comparison, this activity amounted to $48.5 billion in the first half of 2017, led by a small number of large transactions.
Direct investment in Canada totalled $11.7 billion in the second quarter, entirely in the form of equity instruments. More than half of the direct investment activity was in the manufacturing sector. As a result, foreign direct investment generated a net outflow of funds from the economy of $10.0 billion in the second quarter.
Chart 4
Foreign direct investment
Note to readers
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 September 10. For more information, consult the document Real-time CANSIM tables.
Next release
Balance of international payments data for the third quarter will be released on November 29.
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