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| Canada's international investment position
Second quarter 2003 Canada's international investment position Second quarter 2003 For the second consecutive quarter, the value of Canada's assets abroad, as well as its foreign liabilities, dropped dramatically, mostly because of the strengthening Canadian dollar.
As a result of the decline in international assets and liabilities, Canada's net liability to foreign residents - the difference between its external assets and foreign liabilities - reached $227.4 billion at the end of June, the highest level since the first quarter of 2000. Chart 1
The value of Canada's international assets fell to $891.8 billion, down $61.8 billion from the level at the end of March and well below the $983.3 billion at the end of 2002. From March to June, the dollar gained 8% in relation to the US dollar. This gain in the dollar was responsible for $61.0 billion in the decline in value of these assets, most of which are in US dollars. During the first six months of 2003, Canada's assets abroad fell by $91.5 billion, or 9.3%. At the same time, Canada's international liabilities declined by $49.5 billion to $1,119.2 billion. Outflows in the "other investment" category reduced these external liabilities by $23.9 billion, while the strong Canadian dollar reduced them by a further $38.5 billion. As a result, Canada's net external debt represented 19% of its gross domestic product, up a full percentage point from 18% in the first quarter. Substantial decline in Canadian direct investment abroad The stronger Canadian dollar in the second quarter had a large impact on the value of Canadian direct investment abroad, which fell by $25.6 billion to $380.9 billion, the lowest level since the second quarter of 2001. In addition, the flow of Canadian direct investment abroad fell to $2.8 billion, its lowest level since the second quarter of 1996. Canadian direct investment in the United States fell by $14.3 billion to $176.3 billion, which was in the range of levels observed in 2000. Since the beginning of the year, the strengthening Canadian dollar has lowered total direct investment abroad by about $60 billion. About half of this was in the United States. Foreign portfolio investment declines despite stronger equity markets With the increase in prices on global equity markets, Canadians investors bought foreign bonds and equities in the second quarter. However, the increase in the Canadian dollar more than offset these investments, and resulted in a $14.6-billion decline in the value of foreign portfolio position. About two-thirds of the decrease came from the revaluation of holdings of US stocks. At the end of June, Canadians held $104.8 billion in US stocks. Chart 2
Foreign direct investment in Canada increases Foreign investors added $4.8 billion to their direct investment position in Canada. Largely denominated in Canadian dollars, foreign direct investment in Canada reached $357.7 billion at the end of June. Chart 3
The net direct investment position - the difference between Canadian direct investment abroad and foreign direct investment in Canada - decreased to $23.2 billion at the end of June, but still contributed to Canadians' wealth. Portfolio and other investments down Foreign investors acquired $6.4 billion of Canadian bonds issued by corporations and governments in the second quarter. Chart 4
However, as more than one-half of the outstanding Canadian bonds held by foreign investors are issued in US dollars, the total liability in this instrument fell by $17.2 billion to $418.2 billion. Deposit liabilities decreased 16.7% or $34.1 billion as a result of transactions between Canadian banks and their foreign affiliates, mostly in foreign currencies. |
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