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Canada's balance of international payments

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Second quarter 2009 (Previous release)

Canada's overall current account deficit expanded to $11.2 billion during the second quarter of 2009, which also marked the first quarterly deficit on international trade in goods in more than 30 years. This marked the third quarterly current account deficit since the Canadian economy contracted in the fourth quarter of 2008.

Current account balance

In the capital and financial account (unadjusted for seasonal variation), net borrowing from abroad continued. In particular, cross-border financial flows in securities provided substantial inflows of funds to Canada in the second quarter of 2009. A large part of this activity was led by a surge in new issues of Canadian bonds purchased by foreign investors.

Note to readers

The balance of 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. Exports and interest income are examples of receipts, while imports and interest expense are payments. The overall balance of receipts and payments is Canada's current account surplus or deficit.

The capital and financial account is mainly composed of transactions in financial instruments. Financial assets and liabilities with non-residents are presented in three functional classes: direct investment, portfolio investment and all other types of investment. These flows arise from financial activities of either Canadian residents (foreign assets of Canadian investors) or non-residents (Canadian liabilities to foreign investors). Transactions resulting in capital inflows to Canada are presented as positive values while those giving rise to capital outflows from Canada are shown as negative values.

In principle, a current account surplus corresponds to an equivalent net outflow in the capital and financial account; and, a current account deficit corresponds to an equivalent net inflow in the capital and financial account. In other words, the two accounts should add to zero. In practice, as 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.

Current account

Balance on goods deteriorates to register first deficit since 1976

The value of Canada's international trade in goods continued to shrink in the second quarter of 2009, with the decline in exports again exceeding that of imports. Goods exports fell $9.3 billion to $87.6 billion, with reductions spread over most commodities. For their part, imports of goods were down $6.8 billion to $89.4 billion. As a result, the overall goods balance (-$1.7 billion) posted a deficit for the first time since the first quarter of 1976. Trade flows with the United States have been a significant factor in this development as the bilateral goods surplus with the United States narrowed further, down $3.2 billion in the second quarter from the previous quarter. Over the last three quarters, the bilateral goods surplus with the United States has fallen by $17.6 billion.

Reductions on total exports were widespread in the second quarter. Machinery and equipment were down $3.5 billion as volumes dropped for all components. Industrial goods fell $2.2 billion mainly on lower volumes, amounting to a drop of almost 40% over the last three quarters. Sales of automotive products edged down in the second quarter following a significant reduction in the previous quarter. The value of energy products sold abroad declined $1.8 billion. Natural gas prices fell by more than one-third during the quarter, which led to a reduction of $2.3 billion in the value of exports for that commodity; however, exports of crude petroleum were up $1.3 billion, despite lower volumes.

Goods and other current account balances

As the Canadian dollar appreciated (+8.5% against the US dollar), lower prices were more important in explaining overall import declines in the second quarter. Imports of machinery and equipment dominated with a decline of $3.2 billion, about evenly accounted for by lower volumes and lower prices. Industrial goods imports fell $2.4 billion, led by lower prices for almost all the commodities and supplemented by lower volumes for metals and metal ores. Automotive products were flat in the second quarter, following a large import decline in the first quarter. Imports of energy products were largely unchanged in the second quarter, as increases in volume of crude petroleum were more than offset by declines in the volumes of other energy products.

Services deficit narrows, while investment income deficit expands

The overall services deficit narrowed in the second quarter as deficits in transportation and in commercial services were reduced somewhat. Both transportation payments and receipts continued to decline in line with lower activity in merchandise trade. Commercial services payments edged down, despite an increase in the commissions paid on new issues of Canadian bonds and on trade of outstanding foreign stocks. However, the travel deficit was unchanged in the second quarter at $2.9 billion, as lower receipts from American travellers in Canada were offset by lower spending by Canadians travelling to countries other than United States.

In the second quarter, payments on investment income increased $0.7 billion such that the deficit on investment income expanded $1.0 billion. On the payments side, profits accruing to foreign direct investors were up $1.3 billion, largely accounted for by the transportation equipment sector. At the same time, income receipts on portfolio assets were down $0.4 billion.

Capital and financial account

Foreign demand for Canadian bonds leads inflows of funds

Non-residents invested $38.3 billion in Canadian securities in the second quarter of 2009, as they acquired bonds at an unprecedented rate. This activity accounted for the lion's share of inflows of funds in the quarter. Overall, non-resident investors have picked up $62 billion of Canadian securities in the first half of 2009.

In the second quarter, foreign investors added a further $30.7 billion of Canadian bonds to their portfolios. Nearly 70% of this activity was comprised of new issues of bonds, reflecting strong borrowing of corporations and provincial governments. The remainder of this activity was mainly the result of secondary market purchases of federal bonds, as yields on these bonds increased to levels last seen in the third quarter of 2008.

In addition, non-residents continued to buy Canadian money market instruments for the fifth straight quarter but at a much reduced pace, acquiring $1.0 billion during the quarter compared with $19.5 billion in the last two quarters. Although Canadian short-term interest rates remained above US rates in the second quarter, the differential has narrowed.

Foreign portfolio investment in Canada

Foreign investment in Canadian equities was also relatively robust as Canadian stock prices increased strongly during the quarter. The Canadian stock market rebounded between March and June with the Standard and Poor's / Toronto Stock Exchange index up nearly 20% during the period. Acquisitions of Canadian stocks by non-resident investors were up $6.6 billion in the second quarter, as investment focused on banking and other financial shares.

Canadian investment in foreign securities slows

Canadian investment in foreign securities slowed to $2.1 billion in the second quarter from $13.4 billion in the previous quarter, as investment in foreign equities was at a much reduced pace. Nevertheless, Canadian investors acquired $4.1 billion of foreign shares in the second quarter as major global stock markets posted strong gains. Investment in the quarter was equally split between US and non-US instruments: the US mainly private equities and the European shares mainly from the consumer products sector.

Meanwhile, Canadians disposed of $1.9 billion of foreign debt instruments, both bonds and short-term paper, during the second quarter. Transactions in US government debt instruments resulted in a substantial divestment of $3.3 billion, partly offset by the acquisition of $1.2 billion of non-US debt securities. This was the first net investment in non-US debt securities since the second quarter of 2007.

Canadian portfolio investment abroad

Direct investment activity remains subdued

Cross-border direct investment activity was again relatively moderate in the second quarter with little merger and acquisition activity. Canadian direct investment abroad of $3.8 billion in the second quarter was comprised of earnings reinvested in operations of foreign subsidiaries, largely Canadian financial firms. Foreign direct investment in Canada amounted to a withdrawal of $660 million of funds, mainly by US and British direct investors.

Reductions of other Canadian liabilities moderate total inflows of funds

Transactions in the other investment account of the balance of payments resulted in a net outflow in the second quarter. Canadian liabilities to non-residents, essentially in the form of short-term loans and bank deposits, were down $18.7 billion following sizable increases in the previous three quarters.

Available on CANSIM: tables 376-0001 to 376-0017 and 376-0035.

Definitions, data sources and methods: survey numbers, including related surveys, 1534, 1535, 1536 and 1537.

The second quarter 2009 issue of Canada's Balance of International Payments (67-001-X, free) will be available soon.

The balance of international payments data for the third quarter of 2009 will be released on November 27.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Client Services (613-951-1855; infobalance@statcan.gc.ca), Balance of Payments Division.

Table 1

Balance of payments
  Second quarter 2008 Third quarter 2008 Fourth quarter 2008 First quarter 2009 Second quarter 2009 2007 2008
  Not seasonally adjusted
  $ millions
Current account              
Receipts              
Goods and services 147,681 148,813 132,622 109,463 106,085 532,763 560,335
Goods 130,062 128,806 115,720 93,933 89,518 463,127 489,857
Services 17,619 20,007 16,902 15,530 16,567 69,637 70,478
Investment income 19,814 17,608 15,603 14,043 14,198 76,546 71,667
Direct investment 11,050 9,223 7,523 6,186 6,625 41,884 37,590
Portfolio investment 5,739 5,647 5,265 5,698 5,292 22,066 22,198
Other investment 3,026 2,738 2,814 2,159 2,280 12,596 11,880
Current transfers 2,229 2,109 3,228 2,917 1,831 9,489 10,322
Current account receipts 169,725 168,530 151,453 126,423 122,113 618,798 642,324
Payments              
Goods and services 137,679 137,074 135,697 116,582 113,291 503,840 535,965
Goods 114,204 113,793 113,028 92,918 91,204 415,229 442,988
Services 23,475 23,281 22,669 23,664 22,087 88,611 92,977
Investment income 22,562 22,674 20,853 16,674 17,323 87,880 86,891
Direct investment 11,640 11,132 8,072 5,570 7,078 39,830 40,001
Portfolio investment 7,775 8,179 8,480 8,226 8,221 30,999 31,981
Other investment 3,147 3,363 4,302 2,877 2,024 17,051 14,908
Current transfers 2,453 2,659 2,760 3,582 2,227 11,473 11,353
Current account payments 162,695 162,407 159,310 136,838 132,842 603,192 634,209
Balances              
Goods and services 10,002 11,739 -3,074 -7,119 -7,206 28,924 24,370
Goods 15,858 15,013 2,692 1,015 -1,686 47,898 46,869
Services -5,856 -3,274 -5,766 -8,134 -5,520 -18,974 -22,499
Investment income -2,748 -5,066 -5,251 -2,631 -3,126 -11,334 -15,223
Direct investment -590 -1,909 -549 615 -453 2,054 -2,411
Portfolio investment -2,036 -2,532 -3,214 -2,528 -2,928 -8,933 -9,783
Other investment -122 -626 -1,487 -718 256 -4,455 -3,029
Current transfers -224 -550 468 -665 -397 -1,984 -1,031
Current account balance 7,030 6,123 -7,857 -10,415 -10,728 15,606 8,115
Capital and financial account1, 2              
Capital account 1,191 1,113 1,023 1,213 1,090 4,258 4,520
Financial account -5,201 -10,405 11,262 13,989 12,109 -23,819 -11,641
Canadian assets, net flows              
Canadian direct investment abroad -11,912 -26,676 -14,444 -2,235 -3,828 -64,056 -82,874
Portfolio investment -3,167 -783 21,057 -13,430 -2,140 -48,426 13,652
Foreign bonds 1,121 4,319 11,599 -533 1,652 -28,902 16,354
Foreign stocks -4,815 -5,739 5,531 -10,795 -4,081 -30,946 -7,914
Foreign money market 527 637 3,927 -2,102 289 11,422 5,212
Other investment -7,754 -394 -7,654 -1,632 -826 -63,194 -34,311
Loans 1,734 6,446 -5,123 720 -6,577 -10,237 -626
Deposits -7,797 -8,531 -6,691 3,474 1,765 -42,202 -37,227
Official international reserves -1,816 -779 638 -1,078 -547 -4,644 -1,711
Other assets 125 2,469 3,522 -4,747 4,533 -6,111 5,253
Total Canadian assets, net flows -22,833 -27,854 -1,041 -17,297 -6,794 -175,676 -103,533
Canadian liabilities, net flows              
Foreign direct investment in Canada 5,566 16,591 8,867 1,099 -660 116,448 47,710
Portfolio investment 28,648 -6,656 -3,092 23,604 38,278 -31,590 29,057
Canadian bonds 20,352 -3,333 -11,743 11,447 30,665 11,548 15,179
Canadian stocks 5,617 -5,323 -1,246 2,587 6,565 -41,994 2,746
Canadian money market 2,679 2,000 9,897 9,570 1,047 -1,143 11,132
Other investment -16,582 7,514 6,528 6,584 -18,715 66,999 15,124
Loans -1,422 3,091 573 1,671 -9,839 13,084 3,208
Deposits -15,598 4,270 8,535 4,674 -8,581 48,566 13,372
Other liabilities 438 153 -2,581 239 -294 5,349 -1,456
Total Canadian liabilities, net flows 17,632 17,449 12,303 31,286 18,903 151,857 91,891
Total capital and financial account,              
net flows -4,010 -9,292 12,285 15,201 13,199 -19,562 -7,122
Statistical discrepancy -3,020 3,169 -4,428 -4,786 -2,471 3,955 -994
A minus sign denotes an outflow of capital resulting from an increase in claims on non-residents or from a decrease in liabilities to non-residents.
Transactions are recorded on a net basis.

Table 2

Current account
  Second quarter 2008 Third quarter 2008 Fourth quarter 2008 First quarter 2009 Second quarter 2009 2007 2008
  Seasonally adjusted
  $ millions
Receipts              
Goods and services 143,916 146,864 134,111 113,763 104,269 532,763 560,335
Goods 126,385 129,144 116,332 96,937 87,645 463,127 489,857
Services 17,531 17,719 17,779 16,826 16,625 69,637 70,478
Travel 4,026 4,053 4,006 3,891 3,829 16,468 16,119
Transportation 3,212 3,247 3,105 2,853 2,566 11,881 12,598
Commercial services 9,855 9,965 10,205 9,613 9,755 39,627 39,974
Government services 439 454 464 469 474 1,660 1,787
Investment income 19,214 17,902 15,534 14,144 13,902 76,546 71,667
Direct investment 10,625 9,475 7,348 6,301 6,423 41,884 37,590
Interest 758 829 483 390 350 1,935 2,690
Profits 9,867 8,646 6,866 5,911 6,073 39,949 34,900
Portfolio investment 5,608 5,672 5,395 5,614 5,226 22,066 22,198
Interest 1,749 1,764 1,477 1,655 1,426 8,067 6,637
Dividends 3,859 3,908 3,918 3,959 3,799 13,999 15,561
Other investment 2,981 2,755 2,791 2,230 2,253 12,596 11,880
Current transfers 2,569 2,494 2,831 2,604 2,074 9,489 10,322
Private 617 630 693 765 767 2,599 2,515
Official 1,952 1,864 2,138 1,839 1,307 6,890 7,807
Total receipts 165,699 167,260 152,476 130,512 120,245 618,798 642,324
Payments              
Goods and services 133,402 138,198 136,732 118,942 111,423 503,840 535,965
Goods 110,154 115,028 112,815 96,172 89,359 415,229 442,988
Services 23,247 23,170 23,918 22,769 22,064 88,611 92,977
Travel 7,247 7,245 7,032 6,775 6,726 26,511 28,734
Transportation 5,279 5,531 5,622 5,199 4,770 19,842 21,590
Commercial services 10,431 10,103 10,970 10,520 10,266 41,120 41,484
Government services 290 290 294 276 302 1,137 1,170
Investment income 22,571 22,972 20,664 16,596 17,332 87,880 86,891
Direct investment 11,434 11,066 8,225 5,688 6,933 39,830 40,001
Interest 728 737 738 626 617 3,711 2,947
Profits 10,706 10,329 7,487 5,062 6,316 36,118 37,054
Portfolio investment 7,760 8,145 8,487 8,290 8,217 30,999 31,981
Interest 5,622 5,909 6,328 6,232 6,180 22,851 23,370
Dividends 2,138 2,236 2,159 2,058 2,038 8,147 8,612
Other investment 3,377 3,762 3,952 2,619 2,182 17,051 14,908
Current transfers 2,977 2,833 2,840 2,704 2,692 11,473 11,353
Private 1,812 1,842 1,819 1,685 1,611 7,759 7,252
Official 1,165 991 1,021 1,019 1,081 3,713 4,101
Total payments 158,951 164,004 160,236 138,242 131,447 603,192 634,209
Balances              
Goods and services 10,514 8,666 -2,621 -5,178 -7,154 28,924 24,370
Goods 16,230 14,116 3,517 765 -1,714 47,898 46,869
Services -5,716 -5,451 -6,139 -5,943 -5,439 -18,974 -22,499
Travel -3,222 -3,193 -3,026 -2,884 -2,897 -10,043 -12,615
Transportation -2,068 -2,284 -2,518 -2,345 -2,203 -7,961 -8,992
Commercial services -576 -138 -765 -907 -511 -1,493 -1,510
Government services 150 164 170 193 172 522 618
Investment income -3,358 -5,070 -5,130 -2,452 -3,431 -11,334 -15,223
Direct investment -809 -1,591 -876 613 -510 2,054 -2,411
Interest 30 92 -255 -236 -267 -1,776 -258
Profits -839 -1,683 -621 849 -244 3,830 -2,154
Portfolio investment -2,153 -2,472 -3,092 -2,676 -2,992 -8,933 -9,783
Interest -3,873 -4,144 -4,851 -4,577 -4,753 -14,784 -16,733
Dividends 1,721 1,672 1,758 1,901 1,761 5,851 6,950
Other investment -397 -1,007 -1,161 -389 71 -4,455 -3,029
Current transfers -408 -339 -9 -100 -618 -1,984 -1,031
Private -1,195 -1,213 -1,126 -920 -843 -5,160 -4,737
Official 787 874 1,117 820 225 3,176 3,706
Current account 6,748 3,257 -7,760 -7,730 -11,202 15,606 8,115