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Balance of international paymentsSecond quarter 2006HighlightsCanada's current account surplus with the rest of the world, on a seasonally adjusted basis, fell by $4.0 billion in the second quarter to $4.2 billion. This was the second consecutive important decrease in the surplus after it had peaked at the end of 2005. As in the previous quarter, most of the decline came from a lower surplus on trade in goods. Current account surplus down sharply again In the capital and financial account (not seasonally adjusted), Canada’s international assets and liabilities grew strongly in roughly equal measures for a second consecutive quarter. The increase to Canada’s foreign assets came, in part, from near record acquisitions by portfolio investors. Current accountGoods surplus falls againThe surplus on trade in goods decreased $3.8 billion to $12.8 billion in the second quarter following a similar reduction in the first quarter. While the first quarter saw imports and exports decline, second quarter exports continued to decline while imports rebounded. Exports shrank $2.0 billion to $112.5 billion while imports rose $1.8 billion to a record $99.7 billion. The value of energy product exports improved somewhat in the second quarter, following a drop of $4.5 billion in the previous quarter. While prices of natural gas continued to diminish, prices of crude petroleum rose by more than 20% during the quarter, notably due to much higher prices for heavy crude petroleum which accounted for roughly two-thirds of the total export volume. Goods surplus all from energy Lower exports of cars during the second quarter resulted in a $1.7 billion reduction in exports of automotive products. This was the lowest level of exports for this group of products since 1998. Machinery and equipment exports fell $0.8 billion during the quarter, the drop being spread among most of the components while forestry products continued their downward trend which started two years ago. These decreases were partly offset by an improved performance for industrial goods, notably metal and alloys products. Imports of energy products rose $1.8 billion in the second quarter. Crude petroleum accounted for most of the rise as both prices and volumes went up while petroleum and coal products also registered a significant increase. Deficit on investment income widensThe deficit on investment income increased $0.4 billion to $4.4 billion. Despite a second consecutive increase, the deficit remained low on an historical basis. Investment income deficit widens but remains historically low Profits earned by non-residents on their direct investments in Canada remained relatively stable in the second quarter. However, the dividends paid declined to more normal levels after two consecutive quarters above the $5 billion level. At the same time, the profits earned by Canadian direct investors went down $0.8 billion. Receipts of interest on foreign bonds and money market instruments increased for the ninth consecutive quarter as Canadians continued to augment their holdings of such securities. Payments of interest on Canadian portfolio liabilities remained low, as lower payments on bonds were partly offset by higher transactions related to money market instruments. Services deficit up slightly againThe services deficit increased $0.3 billion during the second quarter to $4.5 billion, another record. Higher payments for transportation services were the main contributor to the increase with the travel deficit remaining high. Both commercial service exports and imports registered similar increases and the deficit stayed at $0.8 billion. Canadian travellers have again increased their international payments in the second quarter, notably in countries other than the United States. However, for the first quarter since the end of 2004, there was an increase in spending by U.S. travellers in Canada. While the total number of travellers from the United States coming to Canada decreased slightly in the second quarter, there was a larger number of people staying at least one night in the country. On average, this group of travellers stay three to four days in the country and spend eight times more than same-day travellers. Financial accountNear record investment in foreign securitiesCanadians purchased $18.8 billion of foreign securities in the second quarter, consisting of bonds and equities. Together with the record first quarter buying, the back-to-back quarters showed a $38.7 billion investment, already over 60% of the record total for 2000. Strong investment in foreign securities continues1 Two-thirds of the $18.8 billion investment was in foreign bonds, a high-water mark for a second straight quarter. The investment in foreign bonds was roughly split between US corporate bonds and overseas bonds. Canadian investment in US treasuries was little changed after 10 quarters of investment. Similar to the first quarter, some of the Canadian investment was channelled into “maple bonds”. Foreign issuers have been marketing their debt in Canada for some time now. Typically, the bonds are denominated in Canadian dollars and sold to institutional investors. The second quarter saw Canadian investors again buy large amounts of foreign equities, totalling $7.6 billion. Canadian pension funds have been particularly active in acquiring foreign shares. Just over half of the total was in US shares with the remainder in overseas equities. At the same time, Canadian investors sold back the $1.1 billion worth of foreign money market paper they acquired in the first quarter. During the second quarter, investors bought $1.6 billion of US paper but sold $2.8 billion of overseas paper. Direct investment abroad up strongly from a low in quarter oneAn $11 billion injection into foreign economies by Canadian direct investors was a return to a more usual level of investment comparable to those observed over the last few years. The first quarter investment of $7.3 billion was the lowest quarterly amount in two years. Most of the investments in the current quarter were injections of working capital into existing foreign affiliates. From an industry perspective, investment was concentrated in the finance and insurance sector. Direct investment abroad was well spread geographically, led by investment in Europe. Canadian direct investment abroad rebounds1 Foreign direct investment lower in Canada after three strong quartersIn the second quarter, foreign direct investors injected $8.4 billion into the Canadian economy, down from the average of $14.4 billion of the past three quarters. The foreign investment was split between acquisitions, advances of working capital and strong reinvested earnings. While there have been a number of announcements of major foreign acquisitions during the second quarter, many of these have not formally closed. Much of the quarter-two investment came from American investors and was widely spread by industry. Strongest foreign investment in Canadian securities in six quartersForeign portfolio investment strengthened in the current quarter as investors bought equities and money market paper. They bought $10.4 billion worth of Canadian securities in the quarter which exceeded investment for all of 2005. Equities lead foreign investment in Canadian securities Foreign investors bought $9.1 billion worth of equities during the quarter despite a falling S&P/TSX Composite Index. The investment came largely from the United States while investment from British investors was offset by sales of other Europeans. Biggest quarterly foreign investment in Canadian paper since 1997Foreign investors made a significant investment in Canadian money market paper for a third consecutive quarter. They bought $4.6 billion worth of Canadian money market paper after buying a similar amount in the two previous quarters. Over half of the investment went to paper issued by federal enterprises with the remainder spread between corporate and government paper. Regionally, investors out of the US and UK led the buying. Short-term rates continued upward in the United States and in Canada, with the differential favouring investment in the US narrowing to just under one-half of a percentage point. Largest foreign investment in Canadian paper in almost 10 years Non-residents continued to sell Canadian bonds for a fourth straight quarter. The foreign divestment of $3.2 billion in the second quarter was the largest of the four quarters, which have totalled $8.9 billion. In quarter-two, they sold federal government and corporate bonds but bought some bonds issued by federal enterprises. Regionally, the divestment came mainly from the US and emerging economies countered by some buying from European investors. On a currency basis, the foreign selling was largely in Canadian bonds denominated in US dollars. However, there were purchases of bonds denominated in other foreign currencies. Transactions in deposits, loans and reservesThe other investment account recorded a large net inflow of $13.8 billion. The inflow was mostly related to higher deposit liabilities and secondly loan liabilities. Deposits and loans also increased strongly on the asset side partly offsetting the increased liabilities. The Canadian dollar jumped 4 full cents during the quarter to close at 89.6 US cents against its American counterpart. The Canadian dollar declined somewhat against most other major foreign currencies except 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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