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Analysis — First quarter 2010
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The deficit on current transactions (on a seasonally adjusted basis) with the rest of the world narrowed to $7.8 billion in the first quarter, led by a larger trade in goods surplus and a reduced deficit on international travel. This was down from a current account deficit of $10.2 billion in the fourth quarter of 2009.
Cross-border financial transactions (unadjusted for seasonal variation) generated continued inflows of foreign funds to the Canadian economy, though less than the previous quarter, and was led again by purchases of Canadian securities. Strengthened foreign direct investment in Canada was also a source of funds for Canadian corporations in the first quarter. Non-residents have made large acquisitions of Canadian securities since the outset of 2009, mainly longer-term debt instruments.
Current account
Goods surplus expands further
The surplus on trade in goods widened further in the first quarter, with exports advancing more than imports. The goods surplus stood at $1.7 billion in the first quarter, up from $0.4 billion the previous quarter, following two quarters of deficits. Notably, these gains were largely on trade with the United States, as the bilateral goods surplus with the United States has expanded for the last two quarters.
Exports of goods have strengthened over the last three quarters, gaining $11.8 billion since the 10-year low at the time of the second quarter of 2009. Goods exports advanced $4.4 billion to $99.8 billion in the first quarter, with US sales accounting for $3.4 billion of the increase.
Note to readers
Annual and quarterly data have been revised for the reference years 2006 to 2009. This is in keeping with the general policy to revise national accounts statistics back four years at the time of the first quarter data release. In general, the revisions reflect more current sources of information coming from annual surveys and administrative data.
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.
The largest increase in goods exports in the first quarter was in industrial goods, up $2.8 billion on higher volumes and higher prices. Half of this activity was from metal and alloys products, which have grown by 50% since the second quarter of 2009. Exports of energy products rose almost $2 billion, in line with higher prices as well as higher volumes. One half of this activity was accounted for by a 25% increase in natural gas exports, reflecting price gains and firmer foreign demand.
Other export categories posted mixed results. Forestry and agriculture and fish products strengthened. Exports of automotive products slowed to a $0.2 billion increase in the first quarter, as higher volumes were largely offset by the effect of lower prices. Machinery and equipment exports continued to slide, with lower volumes of aircraft and other transportation equipment accounting for most of the $0.6 billion drop.
Imports of goods continued to increase in the first quarter, up $3.1 billion to $98.1 billion. Industrial goods and imports of automotive products were both up $1.3 billion. Most components of industrial goods were up in the first quarter, essentially on higher volumes. Imports of automotive products reflected higher volumes for trucks and parts. Imports of energy products were up $0.5 billion in the first quarter through higher prices.
Services deficit narrows
The deficit on trade in services was reduced by $0.5 billion in the first quarter. Travel spending was the largest contributor to the decline and the deficit on international travel narrowed by $0.3 billion during the quarter. Meanwhile, expenditures of non-residents visiting Canada were up 5.0%. In particular, the number of visitors from overseas increased by 5.8% during the quarter and their spending was up by 8.3% for that period, reflecting the Vancouver Winter Olympics and Paralympics in February and March.
Both the commercial services and transportation services deficits narrowed slightly, as receipts for these two categories advanced by more than payments.
Deficit on investment income unchanged
The investment income deficit remained at $3.9 billion in the first quarter. On the receipt side, earnings from abroad of Canadian direct investors were up $1.1 billion, largely in the finance and energy sectors. However, this was partially offset by lower income on Canadian holdings of foreign securities, both dividends and interest. On the payments side, earnings of foreign direct investors on their operations in Canada were up $0.4 billion, mainly in the transportation equipment sector.
Capital and financial account
Foreign purchases remain focussed on bonds
Non-resident investors continued to accumulate Canadian securities in the first quarter, but at a slower pace. They added $18.2 billion of Canadian content to their portfolios, led by bonds. Activity in Canadian stocks and money market instruments resulted in a small withdrawal of funds from abroad in the quarter.
A further $19.1 billion of foreign funds was placed in Canadian bonds in the first quarter, approximating the quarterly average investment for 2009. Most of the foreign investment in the first quarter occurred in January and February and was almost equally split between federal government bonds and private corporate bonds, following the pattern set in 2009. The federal government continued to raise funds in both domestic and foreign markets in the first quarter, while foreign investment in private corporate bonds reflected new foreign currency denominated issues as well as purchases on secondary markets.
Foreign divestment in Canadian money market instruments, at $251 million, was significantly less than reductions in the second half of 2009. This activity reflected decreased holdings of provincial and corporate paper, partly offset by increased holdings of federal government Treasury Bills. Non-resident holdings of Canadian stocks were also down, falling by $670 million, the first divestment since the fourth quarter of 2008, when global stock markets recorded sizable losses. Against a backdrop of sustained gains in domestic stock prices, non-residents sold Canadian corporate shares on secondary markets but acquired new issues.
Canadian investors move back into foreign securities
Canadian investors acquired $5.2 billion of foreign securities in the first quarter, following two quarters of divestment. Acquisitions were dominated by foreign stocks and, to a lesser extent, foreign short-term paper. Investment activity was brisk in March, as the Canadian dollar appreciated strongly against most major foreign currencies.
The $6.3 billion increase in holdings of foreign equity in the first quarter was the largest in a year, as major world stock markets outperformed their Canadian counterpart. Activity was focused in non-US securities. However, Canadian investors also added US stocks to their portfolios for a fifth quarter.
A reduction of $2.3 billion in holdings of foreign bonds was moderated by purchases of $1.2 billion in foreign short-term paper in the first quarter. The fourth quarter of divestment in foreign bonds largely reflected retirements in the maple bond market. Canadian funds placed in foreign money market instruments were entirely comprised of US government T-bills.
Foreign direct investment in Canada strengthens
Foreign direct investors placed $15.2 billion in Canadian corporations in the first quarter. Investment was concentrated in the Canadian resource and financial sectors. Foreign direct investment acquisitions of Canadian firms accounted for $3.8 billion of the total. Direct investors from the United States and the United Kingdom were the major contributors to the inflows, a reversal from the last few quarters.
Canadian direct investment abroad slowed significantly to $863 million in the first quarter, the lowest since 1992. Activity was accounted for by income earned and reinvested into foreign subsidiaries. On a geographical basis, there were large reductions of direct investment assets in the United Kingdom offset by increases in elsewhere, notably other European Union countries.
