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Balance of international paymentsFirst quarter 2005HighlightsCanada's current account surplus with the rest of the world, on a seasonally adjusted basis, dropped $1.3 billion in the first quarter of 2005 to $4.0 billion, the lowest level since the second quarter of 2003. Higher imports of goods led to this third consecutive decline in the current account surplus. In the capital and financial account (not seasonally adjusted), growth in Canada’s foreign assets outpaced that in international liabilities for a sixth consecutive quarter. There were moderate increases to both direct investment assets and liabilities with continued growth in Canadian holdings of foreign bonds. Current account surplus falls for a third consecutive quarter Current accountGoods surplus falls again The surplus on trade in goods fell $1.3 billion to $13.2 billion in the first quarter. Imports increased $2.5 billion during the quarter while exports rebounded after a large drop in the fourth quarter. This was the third consecutive decline in the goods surplus. Since the second quarter of 2004, the goods surplus has decreased by almost $6 billion. On the import side, the largest increases were registered in machinery and equipment products and industrial goods. Imports of passenger cars and trucks also increased but this was partially offset by the lower imports of motor vehicle parts. Exports went up by $1.2 billion with the largest increase in industrial goods. For the third quarter in a row, the exports of automotive products decreased. Exports of crude petroleum products also dropped significantly due to lower prices. Goods surplus continues to fall Lower profits on direct investment The deficit on investment income decreased $0.4 billion to $5.7 billion. This marked only the second time in 11 years that the deficit on investment income was below $6.0 billion. Profits earned on foreign direct investment in Canada fell by $1.5 billion in the first quarter with the energy and construction sectors showed the largest drops. Dividends returned to a more typical level following the large payments in the fourth quarter. Profits earned on Canadian direct investment abroad were down $0.8 billion in the quarter. Dividends earned on foreign portfolio equities were also down. Smaller deficit on profits from direct investment Services deficit increased slightly In the first quarter, the deficit on trade in services rose by $0.2 billion to $3.2 billion. Travel was the only major component with significant changes. Payments on travel services increased $0.3 billion while receipts remained unchanged in the first quarter. During the quarter, a record number of Canadians visited countries other than United States while the number of Canadians spending at least one night in the United States reached its highest level since 1997. Travel deficit increases as more Canadians travel abroad Financial accountModerate increase in direct investment abroad At $10 billion, Canadian direct investment abroad continued to slow from the peak in the second quarter of 2004. An acquisition by a Canadian company of an enterprise in the US financial sector led the quarterly investment. Acquisitions accounted for two-thirds of the quarterly total while four-fifths was invested in the United States. Acquisitions spur direct investment abroad1 Investment in foreign bonds continues to soar Canadian demand for foreign securities remained strong in the quarter with most of the investment going to bonds, a continuation of the pattern prevalent for the last two years. For the quarter, Canadian investors bought $6.7 billion in foreign securities with more than four-fifths going to foreign bonds. The investment in foreign securities was the highest since the second quarter of 2002. Strong demand for foreign bonds continues1 Canadian investors bought $5.5 billion of foreign bonds during the quarter, down $1.1 billion from the record purchase of the previous quarter. Half of the first quarter purchase went to US corporate bonds with the rest to overseas bonds and US treasuries. The surge in foreign bond purchases was due in part to foreign issuers, who have increasingly floated bonds in Canadian capital markets. Those foreign bonds are denominated in Canadian dollars. Meanwhile, Canadians purchased $896 million of foreign stocks in the first quarter. There has been less Canadian demand for foreign equities over the last five quarters. Most of the investment in the quarter was in US stocks ($769 million) with the remainder going to overseas stocks ($127 million). Canadian investors also bought foreign money market paper in the first quarter. Their purchases of $330 million were primarily in overseas short-term securities. Foreign direct investment in Canada returns Foreign direct investment in Canada highest in three years Foreign direct investors made their highest quarterly investment in three years. In fact, the first quarter total of $9.4 billion was higher than the annual totals for the last two years. The foreign investment went to both acquisitions and increases to working capital. For the quarter, most of the investment came from the United States (78%) while industrially it was concentrated in the food and beverages and energy and metallic mineral industries. Portfolio investors target Canadian equities Foreign investment in Canadian securities goes mainly to equities Foreign portfolio investors upped their holdings of Canadian securities by $4.7 billion in the quarter, under a third of the previous quarter’s $16 billion. Foreign investors bought mainly equities, as their investment in debt instruments was negligible. Over half of the $4.8 billion investment in Canadian stocks in the quarter was in other transactions, mainly arising from the takeover of a foreign firm by a Canadian company. This transaction was partly comprised of a share swap whereby the foreign firm’s shareholders received new treasury shares from the Canadian buyer. With share prices up almost 4% over the quarter, the remaining foreign investment was in outstanding Canadian shares ($1.9 billion). This was down from the $4.4 billion average of the previous two quarters. There was a relatively small foreign investment in Canadian bonds of $900 million. Foreign investors bought bonds issued by provincial governments but sold federal government and corporate bonds. In the three previous quarters, foreign investment in bonds averaged $6.1 billion. The acquisitions of Canadian bonds were by European investors with American investors selling some of their holdings. On a currency basis, investors bought Canadian bonds denominated in other foreign currencies but sold those denominated in US dollars. This was the reverse of the pattern in 2004 when the $20.1 billion acquisition was roughly split between US and Canadian dollar denominated bonds, as non-residents reduced their holding of bonds in other foreign currencies. Foreign investors sold $1.1 billion worth of Canadian short-term paper. The sales were concentrated in paper issued by federal enterprises as foreign investors bought small amounts of paper issued by corporations and the federal government. US short term rates continued to rise from an historic low recorded in January of 2004. With Canadian rates relatively stable over this period, the differential has swung to marginally favour investment in United States (18 basis points). Other investment Net transactions in the other investment account recorded a large capital outflow as other investment assets grew faster than liabilities. The increase in liabilities came after two quarters of reduction. For a second consecutive quarter, deposit assets increased substantially again led by inter-company transactions between Canadian banks and their foreign affiliates. The quarter also saw the largest increase in Canada’s international reserves in five years ($3.4 billion) which largely offset the reduction in the previous quarter. On the liability side, the increase was all due to loans under repurchase agreements which increased substantially. After a strong appreciation over the final quarter of 2004, the Canadian dollar lost some ground against the US dollar during the quarter, closing the first quarter at 82.67 US cents. However, the dollar posted strong gains against most other major currencies particularly the Swiss Franc, the Euro and the Yen. Statistical tablesInformation on methods and data quality available in the Integrated Meta Data Base: 1533, 1534, 1535 and 1536. |
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