Analysis — First quarter 2011

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Canada's net international indebtedness increased $13.5 billion to $209.7 billion at the end of the first quarter. This marked the eight consecutive quarter of decline in Canada's net international investment position. Canada's international liabilities were up $22.6 billion on ongoing strong foreign investment in Canadian securities, in line with the current account deficit. Growth in international assets was constrained by the downward revaluation effect of the appreciation of the Canadian dollar in the quarter.

The appreciation of the Canadian dollar accounted for a $19.8 billion downward revaluation on foreign currency denominated international assets, partially offsetting the effect of Canadian investment abroad in the quarter. Foreign currency denominated liabilities were affected to a lesser extent, with a downward revaluation of $11.4 billion. Over the quarter, the Canadian dollar appreciated 2.6% against the US dollar and 5.1% against the Japanese Yen, but depreciated 3.1% against the Euro and 0.3% against the British pound.

Net direct investment position declines further

Canada's net foreign direct investment position declined further, down $8.4 billion in the first quarter to a net asset position of $46.7 billion. Canadian direct investment flows abroad amounted to $13.1 billion, but these were partly offset by the downward revaluation effect of an appreciating Canadian dollar. On the liability side, the level of foreign direct investment in Canada was up $10.0 billion in the quarter on increased investment inflows from abroad.

Note to readers

Annual and quarterly data have been revised for the reference years 2008 to 2010, and are consistent with Balance of Payments data released May 30, 2011. This is in keeping with the general policy to revise national accounts statistics at the time of the first quarter data release. In general, the revisions reflect more current sources of information arising from annual surveys and administrative data.


The international investment position presents the value and composition of Canada's assets and liabilities to the rest of the world. Canada's net international investment position is the difference between these foreign assets and liabilities. The excess of international liabilities over assets can be referred to as Canada's net foreign debt; the excess of international assets over liabilities can be referred to as Canada's net foreign assets. The valuation of the assets and liabilities in the international investment position are measured at book value, unless otherwise stated. Book value represents the value of assets and liabilities recorded in the books of the enterprise in which the investment is made.

Currency valuation

The value of assets and liabilities denominated in foreign currency are converted to Canadian dollars at the end of each period for which a balance sheet is calculated. Most of Canada's foreign assets are denominated in foreign currencies while less than half of Canada's international liabilities are in foreign currencies. When the Canadian dollar is appreciating in value, the restatement of the value of these assets and liabilities in Canadian dollars lowers the recorded value. The opposite is true when the Canadian dollar is depreciating.

Net investment position on securities continues to weaken

Canada's net portfolio position also fell further in the first quarter to a net debt position of $352.1 billion, led by strong foreign purchases of Canadian securities. Non-residents further increased their holdings of Canadian securities in the first quarter by $10.8 billion, with investment split between Canadian bonds and equities. However, the revaluation effect on foreign currency denominated Canadian debt instruments moderated the increase. On the other side of the ledger, the value of Canadian holdings of foreign securities was down $4.6 billion in the first quarter. This largely reflected a downward exchange rate revaluation of $5.5 billion.

The net investment position on securities has been deteriorating since the global financial crisis. This reflected Canadian sales of foreign debt securities starting in the second half of 2007, and the strong foreign purchases of Canadian debt instruments that began in the fourth quarter of 2008. As a result, the net foreign debt position on portfolio investments in the first quarter reached levels last seen in the late 1990s.

Increase in net foreign debt larger when securities are valuedat market prices

Canada's net international investment position can also be calculated with tradable securities valued at market prices. By this measure, Canada's net foreign debt increased by $22.3 billion to $206.2 billion.

During the first quarter, Canadian equity markets posted stronger gains than foreign equity markets. In addition, non-resident acquisitions of Canadian stocks exceeded Canadian purchases of foreign stocks. As a result, non-resident investor holdings of Canadian equities rose by $30.8 billion, compared with an increase of $14.3 billion in Canadian investor holdings of foreign equity assets.