Canada's balance of international payments, fourth quarter 2022
Fourth quarter 2022
Canada's current account balance (on a seasonally adjusted basis) recorded a $10.6 billion deficit in the fourth quarter, up $2.2 billion from the previous quarter. The higher deficit mainly reflected a deterioration of the investment income balance, while the goods and services deficit narrowed slightly.
In the financial account (unadjusted for seasonal variation), inflows of funds from abroad to finance the current account deficit mainly came from transactions in securities and, to a lesser extent, foreign direct investment. Transactions in securities resulted in a $31.9 billion inflow of funds in the Canadian economy in the fourth quarter. Meanwhile, foreign direct investment in Canada surpassed direct investment abroad for the first time in nearly two years.
For the year, the strength in commodity prices, the substantial raise in interest rates, the decline in global stock markets as well as the loosening travel restrictions all had significant impact on balance of payments flows in 2022.
Lower trade in goods and services deficit
The trade in goods and services balance posted a $2.8 billion deficit in the fourth quarter, down $0.4 billion from the third quarter. Both exports and imports decreased during the fourth quarter.
Exports of goods were down by $4.0 billion to $193.9 billion in the fourth quarter. Exports of energy products fell $7.4 billion as prices continued their downward trend. In the second half of 2022, energy prices decreased by 25.0%. Meanwhile, imports of goods declined by $3.2 billion to $192.2 billion. Consumer goods accounted for the largest reduction, down by $1.5 billion, mostly on lower imports of pharmaceutical and medicinal products.
On a geographical basis, the goods surplus with the United States was down by $4.7 billion in the fourth quarter as exports decreased by $5.5 billion. The deficit with countries other than the United States was reduced by $3.9 billion, mainly reflecting a lower trade deficit with China.
The trade in services deficit narrowed by $1.2 billion to $4.5 billion in the fourth quarter. The travel deficit was reduced by $0.5 billion as expenses of non-residents visiting Canada rose more than expenses of Canadians travelling abroad. At the same time, the commercial services balance went from a small deficit in the third quarter to a $0.3 billion surplus in the fourth quarter, mostly due to stronger exports.
Higher deficit for investment income
The investment income deficit rose $2.7 billion to $5.3 billion in the fourth quarter. Profits earned by foreign direct investors in Canada were up $0.8 billion to $18.5 billion. At the same time, profits earned by Canadian direct investors abroad were down, leading to a lower surplus on direct investment income.
In the global context of rising interest rates, income generated on loans, deposits and debt securities were up significantly in the quarter, with payments increasing by more than receipts. Overall, for these instruments, foreign holdings in Canada are higher than Canadian holdings abroad.
Foreign investment in Canadian debt securities up significantly
Foreign investment in Canadian securities amounted to $42.5 billion in the fourth quarter, up from $18.7 billion in the third quarter. The investment activity mainly targeted private corporate debt securities. More precisely, foreign investors acquired $21.9 billion of Canadian bonds, mainly new bonds, and $20.1 billion of money market instruments.
On the other side of the ledger, Canadian investors acquired $10.6 billion in foreign securities in the fourth quarter, down from $12.2 billion in the third quarter. For a second consecutive quarter, investors largely targeted US government debt securities and reduced their holdings of foreign equities.
Direct investment in Canada exceeds direct investment abroad
Direct investment in Canada amounted to $15.2 billion in the fourth quarter, up slightly from $14.7 billion in the third quarter. Earnings reinvested in Canadian affiliates by their foreign parents accounted for most of the activity in the fourth quarter. Meanwhile, merger and acquisition activity totalled $5.8 billion, up from a low level of $1.4 billion in the third quarter.
Direct investment abroad slowed to $12.6 billion in the fourth quarter, compared with a $26.4 billion investment in the third quarter. The investment activity was predominantly directed to foreign countries other than the United States. Merger and acquisition activity slowed to $2.7 billion in the fourth quarter, the lowest level since the first quarter of 2021.
Year 2022 in review
Current account deficit rises
For the year 2022, the current account balance posted a $10.8 billion deficit, up $4.1 billion compared with 2021. Despite this increase, the deficit in 2022 was the second lowest since 2009.
The trade in goods surplus reached $22.0 billion in 2022, up $17.3 billion from the previous year. Total exports rose by $142.2 billion, led by higher exports of energy products on the strength of prices. Meanwhile, total imports increased by $124.9 billion, with gains widespread across product sections.
However, the higher goods surplus was more than offset by a larger services deficit and an investment income balance that went from a surplus position in 2021 to a deficit in 2022. The trade in services deficit increased as the travel balance returned into a deficit position. Travel activities continued to recover in 2022 after the slowdown affecting most of 2020 and 2021, with payments increasing by more than receipts.
The investment income balance posted a deficit in 2022 after recording two years of surpluses. Higher payments of interest and dividends on foreign holdings of Canadian securities contributed the most to the return to a deficit position. Meanwhile, profits on direct investment, both in Canada and abroad, reached record-high levels in 2022.
Foreign investment in Canadian securities continued in 2022
In the financial account, transactions in securities generated a significant net inflow of funds in the economy of $151.1 billion in 2022. Meanwhile, direct investment activity generated a net outflow of funds totalling $34.7 billion.
Overall, foreign investors acquired $143.7 billion of Canadian securities in 2022. Foreign investment in corporate debt securities increased substantially in 2022 to reach unprecedented levels. New corporate bonds denominated in foreign currencies in the first half of 2022 led the investment activity. On the other side of the ledger, Canadian investors reduced their exposure to foreign securities by $7.5 billion, a first divestment since 2008 during the global financial crisis. Overall, investors sold foreign shares in 2022, mainly US shares, following strong acquisitions in 2021.
Direct investment in Canada amounted to $69.1 billion in 2022, down slightly compared with 2021. The investment was spread across most sectors of the Canadian economy. On a country basis, foreign direct investment from the United States, Netherlands and Luxembourg accounted for more than two-thirds of all activity.
Direct investment abroad reached $103.8 billion in 2022, following a record-high $120.6 billion recorded in 2021. Equity investments made by Canadian parents in their existing foreign affiliates, mainly in the form of reinvested earnings, led the activity in 2022. Merger and activity slowed considerably compared with 2021. More than half of all direct investment abroad was directed to the United States in 2022. The highest proportion of the direct investments abroad was in the financial sector.
Note to readers
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 (+) or net borrowing (-) derived from the sum of the current and capital accounts corresponds to a net lending (+) or 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, 36-10-0473-01 and 36-10-0656-01. 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 "Chapter 8. International Accounts," in the User Guide: Canadian System of Macroeconomic Accounts, available on Statistics Canada's website. The chapter also presents the most recent balance of payments statistics.
Real-time table 36-10-0042-01 will be updated on March 6, 2023. For more information, see Real-time tables.
Balance of international payments data for the first quarter of 2023 will be released on May 30, 2023.
The product Canada's international trade and investment country fact sheet (71-607-X) is available online. This product provides easy and centralized access to Canada's international trade and investment statistics, on a country-by-country basis. It contains annual information for nearly 250 trading partners in summary form, including charts, tables and a short analysis that can also be exported in PDF format.
The product "Canada and the World Statistics Hub" (13-609-X) is available online. This product illustrates the nature and extent of Canada's economic and financial relationship with the world using interactive graphs and tables. This product provides easy access to information on trade, investment, employment and travel between Canada and a number of countries, including the United States, the United Kingdom, Mexico, China and Japan.
The Economic accounts statistics and International trade statistics portals are available from the Subjects module of the Statistics Canada website.
The product Methodology for Exports of Energy Products within the International Merchandise Trade Program, which is part of Latest Developments in the Canadian Economic Accounts (13-605-X), is available.
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.
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