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Analysis — Fourth quarter 2009

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The current account deficit on transactions with the rest of the world narrowed to $9.8 billion in the fourth quarter of 2009 (on a seasonally adjusted basis), largely reflecting an energy-led increase in exports of goods. The current account has been in deficit for the last five quarters, following almost 10 years of surpluses.

Cross-border financial transactions (unadjusted for seasonal variation) continued to generate large inflows of funds, with foreign acquisitions of Canadian bonds again dominating in the quarter to cap a year of unprecedented foreign investment in Canadian securities. Meanwhile, inward and outward direct investment activity slowed from a strong third quarter, with 2009 at significantly lower levels than 2008.

Current account

International trade in goods returns to a surplus position

The trade in goods balance returned to a surplus in the fourth quarter of 2009, following two quarters of deficits. Both exports and imports of goods increased further in the quarter, with exports leading the way. Geographically, Canada's bilateral surplus with the US on goods widened for the first time since the second quarter of 2008.

Exports of goods pick up, led by energy

The value of goods exported rose $5.7 billion during the fourth quarter of 2009, propelled by higher energy product exports. Crude petroleum led the $3.7 billion increase in exports of energy products, as both volumes and prices were up in the fourth quarter. Natural gas exports were up as prices rebounded after four consecutive quarterly reductions, although these gains were dampened by lower volumes.

Note to readers

The balance of international payments covers all economic transactions between Canadian residents and non-residents in two accounts, the current account and the capital and financial account.

The current account covers transactions in goods, services, investment income and current transfers.

The capital and financial account is mainly comprised of transactions in financial assets and liabilities.

In principle, a current account surplus/deficit corresponds to an equivalent net outflow/inflow in the capital and financial account. In practice, as international transactions data are compiled from multiple sources, this is rarely the case and gives rise to measurement error. The statistical discrepancy is the unobserved net inflow or outflow.

For more information about the balance of payments, please consult the "Frequently asked questions" section in the National economic accounts module of our website. The module also presents the most recent balance of payments statistics.

Exports of industrial goods were up $1.9 billion in the fourth quarter, mostly on higher volumes, with two-thirds of the growth in metal and alloys products. Exports of automotive products were up $1.1 billion, all from higher volumes of passenger cars. The value of cars exported has risen by more than 80% since its 17-year low recorded in the first quarter of 2009. Lower volumes on all components of machinery and equipment accounted for the $1.0 billion drop in exports of these products.

Imports of goods slow

The value of imports of goods advanced $1.0 billion in the fourth quarter of 2009. The largest increase was in automotive products, where both imports of cars and parts were each up roughly half a billion dollars, despite lower prices. Imports of industrial goods rose $0.6 billion as prices and volumes edged up. Machinery and equipment imports were down $1.1 billion in the fourth quarter, as prices were down for all components, while volumes were generally lower.

Deficit on international trade in services edges up

The deficit for trade in services expanded marginally in the fourth quarter of 2009. This was mainly due to a slight increase in the commercial services deficit, as imports rose by more than exports. The travel deficit also widened further as Canadians increased their spending in the United States.

Investment income deficit widens further

The deficit on investment income transactions widened to $3.7 billion in the fourth quarter from $3.4 billion in the third quarter. Profits derived from Canadian direct investment abroad were higher in the fourth quarter. However, these inflows were more than offset by both lower foreign dividends received by Canadian portfolio investors and higher profits earned by non-residents on foreign direct investment in Canada, largely in the energy industry.

Capital and financial account

Significant foreign acquisitions of Canadian securities continue, led by bonds

Foreign investors acquired a further $27.7 billion of Canadian securities in the fourth quarter. This was led by a significant foreign investment in Canadian bonds of $28.5 billion, reflecting strong demand for both Canadian dollar-denominated federal bonds and new foreign currency-denominated bonds issued by provincial governments and corporations.

In contrast, non-residents continued to reduce their holdings of Canadian short-term instruments in the fourth quarter, divesting $3.0 billion. Foreign holdings of federal paper fell over 40% in the second half of 2009, which reflected the significant drop in the supply of this instrument in favour of new issues of federal bonds.

Foreign investment in Canadian stocks slowed to $2.1 billion in the fourth quarter. This activity was comprised of new issues, as overall investment was moderated by secondary market sales, the first in 2009. New issues were mainly linked to Canadian direct investment abroad, with Canadian firms issuing shares to non-resident portfolio holders of foreign firms acquired.

Activity in the fourth quarter of 2009 capped the year with an all-time high foreign investment of $109.4 billion. Acquisitions of corporate bonds were up to $41.8 billion in 2009, mainly new issues of mining, energy, and financial firms. After six years of divestment, non-residents purchased $24.8 billion in federal bonds in 2009, in line with substantial new issues by the federal government over the course of the year. Foreign investment in Canadian stocks was also robust in 2009, reflecting both a pickup in foreign direct investment acquisitions in the second half of the year and a 30.7% gain in the Canadian stock market.

Canadian investors continue to sell foreign securities

Canadian investors reduced their holdings of foreign securities by $1.3 billion in the fourth quarter of 2009. This activity was almost all accounted for by foreign equities, following three quarters of acquisitions on foreign stock markets. This divestment was entirely in non-US shares as Canadians continued to add US shares to their portfolios, albeit at a slower pace. US stock prices were up 5.5% between September and December.

Holdings of foreign bonds declined in the fourth quarter, despite a renewed interest in Maple bonds. This divestment was explained by reductions in US corporate bonds, which were partially offset by modest acquisitions of foreign short-term corporate paper.

Overall, 2009 marked a second year of reduced foreign debt instruments held by Canadians. Canadian investment in foreign stocks bounced back in 2009 from 2008, when stock markets had first weakened and then declined sharply in the fourth quarter. This renewed activity in 2009 was led by investment from the pension funds sector. However, investment in 2009 remained well below the average annual investment observed between 2005 and 2007, following the elimination of the foreign content limit for Canadian registered retirement plans.

Direct investment activity eases following a strong third quarter

Canadian direct investment abroad slowed to $14.0 billion in the fourth quarter, almost half the amount recorded in the previous quarter. The reduced outflow in the quarter was attributable to lower direct investment acquisitions, which had picked up in the third quarter. This activity, in the fourth quarter and for the year, was dominated by the finance and insurance sector. Nevertheless, the pace of Canadian direct investors' activities abroad eased in 2009.

Foreign direct investment in Canada also moderated in the fourth quarter, at $7.9 billion. This mainly resulted from lower foreign direct investment acquisitions of Canadian firms. The energy and metallic mineral sector accounted for the bulk of the investment in the quarter, which came mainly from non-G7 countries. Foreign direct investment in Canada slowed for a second year on a further softening of takeover activity, which has lagged since the outset of global credit market concerns in the latter half of 2007.