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Canada's balance of international payments

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Second quarter 2010 (Previous release)

Canada's overall current account deficit (on a seasonally adjusted basis) widened by $2.6 billion to reach $11.0 billion in the second quarter, marking the seventh straight quarter of deficit. Export growth for goods slowed while import growth remained strong, which led to a deterioration in the merchandise trade balance. At the same time, a lower deficit on investment income flows with non-residents was partially offset by a higher deficit on international trade in services.

Current account balances

Cross border financial transactions (unadjusted for seasonal variation) resulted in further significant inflows of funds to the Canadian economy in the second quarter, led again by foreign purchases of Canadian securities. Non-residents acquired Canadian bonds at an unprecedented rate and foreign investment in Canadian stocks rebounded.

Current account

Swing in the goods balance led by trade flows with the United States

The balance on trade in goods declined $2.5 billion in the second quarter to return to a deficit position, following two quarters of surplus. Exports advanced by less than imports, largely reflecting trade results with the United States. The goods surplus with the United States shrank by $2.3 billion, following two quarters of gains.

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, 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 goods rose by $1.2 billion, substantially less than in the previous quarter. Energy products and industrial goods were the two main contributors to the recovery in goods exported during the previous three quarters, but they both declined in the second quarter of 2010.

Goods balances by geographic areas

The exports of energy products fell $1.9 billion in the second quarter, with prices down for all components except coal. Overall, volumes were unchanged, as lower volumes of crude petroleum were offset by higher volumes of natural gas. Following a gain of $5.0 billion over the three previous quarters, exports of industrial goods edged down $0.3 billion on lower volumes.

Exports of automotive products continued to gain ground, up $1.9 billion, with automobiles surpassing the $10 billion mark for the first time since the second quarter of 2007. Machinery and equipment exports were up $1.2 billion, as volumes increased after six quarters of declines and prices advanced for the first time in five quarters.

Imports of goods increased $3.7 billion in the second quarter, led by machinery and equipment imports, which rose by $1.9 billion on higher volumes for all components, while prices were down for a fifth quarter. Imports of industrial goods continued to strengthen, up $1.2 billion, with half of the gains from metal and metal ores. Automotive products imports edged up, as stronger imports of automotive parts were largely offset by lower imports of cars and trucks.

Canadian travel abroad widens the deficit on services

The deficit on trade in services expanded by $0.3 billion in the second quarter, led by travel and travel related components. The travel deficit reached a high of $3.5 billion, up $0.5 billion from the previous quarter. The transportation deficit also expanded in the second quarter, up $0.2 billion, as Canadian travellers increased purchases from foreign carriers.

Canadian spending abroad increased $0.4 billion in the second quarter, reflecting both travel to the United States and overseas destinations. Overnight trips made by Canadians were up almost 4%. However, foreign spending in Canada was down 1.1%, as both American travellers and overseas travellers reduced their spending in Canada.

International trade in commercial services registered a $0.4 billion surplus in the second quarter after being in balance the quarter before. Exports increased while imports declined slightly.

Lower payments lead to decline in investment income deficit

The second quarter saw reduced international flows of investment income, with Canadian payments down more than receipts. Direct investment income accounted for these changes.

Profits earned by foreign direct investors in Canada fell by $0.7 billion, as both earnings and dividends shrank. The largest reductions came in the food, beverage and tobacco sector and the finance and insurance sector. While Canadian direct investors received higher dividends, profits on investments abroad declined $0.4 billion, led by the finance and insurance sector.

Capital and financial account

Foreign investors continue to acquire significant amounts of Canadian securities

Non-resident acquisitions of Canadian securities amounted to $40.7 billion, more than double the investment in the first quarter. Increased inflows from abroad in the second quarter were the result of continued significant foreign investment in Canadian bonds, led by federal government bonds, as well as a rebound in acquisitions of Canadian stocks. There were also modest foreign investments in the Canadian money market following three quarters of withdrawals.

Non-residents added Canadian bonds to their portfolios for a sixth consecutive quarter, buying $32.2 billion in the second quarter. This was driven by unprecedented foreign purchases of federal government bonds of $19.4 billion, with investment in federal bonds so far in 2010 already exceeding that of 2009. The balance of the activity was largely accounted for by foreign acquisitions of new provincial bonds denominated in foreign currencies.

Foreign portfolio investment in Canadian bonds

Foreign investment in Canadian equities rebounded in the second quarter to reach $7.9 billion, following a small divestment in the previous quarter. Against the backdrop of declining share prices, non-residents purchased gold stocks as well as investment funds tracking broad market indices. The bulk of this activity took place in May, when Canadian stock prices retreated for the first time since January 2010.

Foreign investment of $610 million in the Canadian money market in the second quarter was relatively modest and dominated by paper issued by non-financial corporations. In addition, there was marginal investment in federal short-term paper, as short-term interest rates increased to their highest level since February 2009.

Canadian investment in foreign securities remains modest and focused on equities

Canadians acquired $1.2 billion of foreign securities in the second quarter, down from a $5.2 billion investment in the first quarter. Investment in the second quarter again focused on foreign equities, while holdings of both short- and long-term debt securities were reduced.

Canadian portfolio investment abroad

Canadian investment in foreign equities of $4.7 billion in the second quarter was led by demand from Canadian pension plans. Over 60% of the activity targeted the American market, marking the largest such investment in the United States since the first quarter of 2009. US stock prices fell by 11.9% in the second quarter, the most pronounced decline since the fourth quarter of 2008, when global stock markets experienced significant corrections.

Canadians removed a further $2.7 billion from their holdings of foreign bonds in the quarter, on sales of US government bonds. This was partially offset by investment in non-US foreign bonds, mainly bonds issued by national governments from the European Union with high credit ratings. Canadians also divested $744 million of foreign money market instruments after two quarters of investment, mostly through reduced holdings of paper issued by US financial corporations.

Outward direct investment strengthens and inward direct investment slows

Canadian direct investment abroad advanced to $9.4 billion in the second quarter, following a net repatriation of funds in the first quarter. Over half of the outflows in the second quarter were channelled to the US economy, and about 20% were related to mergers and acquisitions. Direct investment abroad in the first half of 2010 was similar to levels observed in the first half of 2009; however, these still amounted to the lowest such outflows for the first six months of a year since 1996.

Foreign direct investors injected $9.7 billion into the Canadian economy in the second quarter, and although a fourth straight quarter of investment, it was down from the previous quarter. Mergers and acquisitions were a small part of this activity. Investors from the United States and the United Kingdom were again the major contributors, and the Canadian energy and metallic mineral sector continued to be the driving force with investments totalling $7.2 billion. For the one-year period ending June 2010, foreign direct investment in this sector was significant at $27.8 billion, after a major slowdown in the first half of 2009.

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 2010 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 will be released on November 29.

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 2009 Third quarter 2009 Fourth quarter 2009 First quarter 2010 Second quarter 2010 2008 2009
  Not seasonally adjusted
  $ millions
Current account              
Receipts              
Goods and services 106,619 108,615 111,639 114,141 120,515 562,109 436,673
Goods 89,742 90,252 95,466 97,804 102,827 489,995 369,529
Services 16,877 18,362 16,173 16,337 17,688 72,113 67,144
Investment income 14,576 14,942 14,529 15,601 15,956 71,881 57,378
Direct investment 7,423 8,576 8,674 9,710 10,077 37,781 30,070
Portfolio investment 5,104 4,562 4,362 4,205 4,185 22,217 19,799
Other investment 2,049 1,805 1,493 1,685 1,694 11,883 7,509
Current transfers 1,929 1,787 2,012 3,074 1,854 10,574 8,622
Current account receipts 123,124 125,344 128,179 132,817 138,325 644,563 502,673
Payments              
Goods and services 113,887 115,731 117,855 119,793 127,195 538,184 463,904
Goods 91,242 93,701 96,277 96,076 103,754 443,752 374,097
Services 22,646 22,030 21,578 23,717 23,441 94,432 89,807
Investment income 18,281 18,995 18,717 20,274 19,154 88,302 71,523
Direct investment 8,048 9,407 9,048 9,590 9,363 41,586 30,764
Portfolio investment 8,209 8,256 8,170 8,354 8,672 32,285 32,950
Other investment 2,025 1,332 1,499 2,330 1,118 14,431 7,808
Current transfers 2,111 2,450 2,633 3,715 2,280 11,159 10,770
Current account payments 134,280 137,176 139,205 143,782 148,629 637,645 546,196
Balances              
Goods and services -7,268 -7,116 -6,216 -5,652 -6,680 23,925 -27,231
Goods -1,500 -3,449 -811 1,728 -927 46,244 -4,568
Services -5,768 -3,668 -5,406 -7,380 -5,753 -22,319 -22,663
Investment income -3,705 -4,053 -4,189 -4,673 -3,197 -16,422 -14,145
Direct investment -625 -832 -374 120 714 -3,805 -694
Portfolio investment -3,105 -3,694 -3,808 -4,148 -4,487 -10,068 -13,151
Other investment 24 473 -6 -644 575 -2,548 -299
Current transfers -182 -663 -621 -641 -426 -585 -2,148
Current account balance -11,156 -11,832 -11,026 -10,966 -10,304 6,918 -43,523
Capital and financial account1, 2              
Capital account 1,220 1,136 693 1,186 1,269 4,650 3,969
Financial account 7,028 7,336 13,137 10,067 11,987 -7,072 39,960
Canadian assets, net flows              
Canadian direct investment abroad -4,356 -26,817 -10,921 2,700 -9,444 -86,214 -44,389
Portfolio investment -1,910 5,337 1,344 -5,180 -1,241 13,653 -8,667
Foreign bonds 1,699 7,493 378 2,301 2,710 16,354 9,030
Foreign stocks -3,899 -2,472 1,316 -6,285 -4,695 -7,914 -15,850
Foreign money market 289 317 -350 -1,196 744 5,212 -1,847
Other investment -2,233 -32,765 -12,881 -34,767 -4,591 -37,611 -50,805
Loans -6,670 -6,830 -4,679 -14,414 3,215 -242 -17,460
Deposits -134 -11,270 -10,420 -13,246 -289 -37,335 -19,058
Official international reserves -547 -13,074 3,082 -3,667 54 -1,711 -11,618
Other assets 5,119 -1,590 -864 -3,440 -7,571 1,677 -2,669
Total Canadian assets, net flows -8,499 -54,244 -22,458 -37,246 -15,276 -110,172 -103,861
Canadian liabilities, net flows              
Foreign direct investment in Canada -2,454 16,770 7,536 13,441 9,675 58,975 21,327
Portfolio investment 39,154 19,488 28,079 18,392 40,706 29,797 110,865
Canadian bonds 31,484 11,547 28,935 19,125 32,170 15,926 83,955
Canadian stocks 6,566 14,996 2,097 -482 7,926 2,746 26,246
Canadian money market 1,104 -7,055 -2,954 -251 610 11,125 665
Other investment -21,173 25,322 -19 15,480 -23,118 14,327 11,629
Loans -11,883 -728 -1,084 1,793 -1,453 4,759 -11,081
Deposits -8,760 16,846 1,118 12,811 -21,977 10,495 13,878
Other liabilities -530 9,204 -54 876 313 -927 8,831
Total Canadian liabilities, net flows 15,526 61,580 35,595 47,313 27,263 103,099 143,821
Total capital and financial account,              
net flows 8,247 8,471 13,830 11,253 13,257 -2,422 43,929
Statistical discrepancy 2,908 3,361 -2,805 -287 -2,953 -4,496 -405
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 2009 Third quarter 2009 Fourth quarter 2009 First quarter 2010 Second quarter 2010 2008 2009
  Seasonally adjusted
  $ millions
Receipts              
Goods and services 104,909 106,842 112,236 117,173 118,555 562,109 436,673
Goods 88,008 90,377 95,375 99,684 100,884 489,995 369,529
Services 16,901 16,465 16,861 17,489 17,671 72,113 67,144
Travel 3,877 3,842 3,869 4,053 4,006 16,544 15,520
Transportation 2,477 2,445 2,534 2,704 2,676 12,170 10,119
Commercial services 10,069 9,717 10,026 10,281 10,541 41,665 39,681
Government services 478 461 433 451 448 1,734 1,824
Investment income 13,760 15,070 14,909 15,649 15,304 71,881 57,378
Direct investment 6,679 8,618 9,020 9,814 9,479 37,781 30,070
Interest 893 1,028 1,003 916 954 3,064 3,902
Profits 5,786 7,590 8,016 8,898 8,525 34,717 26,168
Portfolio investment 5,011 4,635 4,451 4,113 4,130 22,217 19,799
Interest 1,383 1,240 1,227 1,115 980 6,603 5,493
Dividends 3,628 3,395 3,224 2,998 3,150 15,614 14,307
Other investment 2,070 1,818 1,438 1,722 1,696 11,883 7,509
Current transfers 2,227 1,990 1,901 2,723 2,079 10,574 8,622
Private 722 672 661 779 728 2,767 2,804
Official 1,505 1,318 1,240 1,944 1,351 7,807 5,819
Total receipts 120,896 123,902 129,046 135,545 135,938 644,563 502,673
Payments              
Goods and services 112,560 115,780 117,630 121,264 125,409 538,184 463,904
Goods 90,028 93,765 94,939 98,511 102,168 443,752 374,097
Services 22,532 22,016 22,692 22,752 23,241 94,432 89,807
Travel 6,947 7,037 7,063 7,097 7,515 28,629 27,692
Transportation 4,819 4,770 5,016 5,062 5,221 22,255 19,656
Commercial services 10,435 9,884 10,276 10,261 10,179 42,288 41,155
Government services 331 326 337 331 326 1,260 1,304
Investment income 18,207 19,205 18,816 19,977 18,763 88,302 71,523
Direct investment 7,774 9,436 9,217 9,614 8,860 41,586 30,764
Interest 826 816 802 739 699 3,969 3,285
Profits 6,948 8,620 8,415 8,874 8,160 37,617 27,479
Portfolio investment 8,215 8,201 8,161 8,409 8,661 32,285 32,950
Interest 6,262 6,304 6,267 6,226 6,377 23,419 25,156
Dividends 1,953 1,897 1,894 2,183 2,284 8,866 7,794
Other investment 2,218 1,568 1,439 1,955 1,243 14,431 7,808
Current transfers 2,584 2,686 2,803 2,765 2,784 11,159 10,770
Private 1,550 1,659 1,665 1,660 1,678 7,000 6,523
Official 1,034 1,026 1,138 1,104 1,106 4,159 4,247
Total payments 133,351 137,671 139,249 144,006 146,956 637,645 546,196
Balances              
Goods and services -7,651 -8,939 -5,394 -4,091 -6,853 23,925 -27,231
Goods -2,019 -3,388 436 1,172 -1,284 46,244 -4,568
Services -5,631 -5,551 -5,830 -5,263 -5,570 -22,319 -22,663
Travel -3,070 -3,195 -3,194 -3,044 -3,509 -12,085 -12,172
Transportation -2,341 -2,325 -2,482 -2,359 -2,545 -10,085 -9,537
Commercial services -366 -166 -250 20 363 -622 -1,474
Government services 146 135 96 119 121 474 520
Investment income -4,448 -4,135 -3,907 -4,328 -3,459 -16,422 -14,145
Direct investment -1,096 -818 -197 200 619 -3,805 -694
Interest 66 212 201 176 255 -904 618
Profits -1,162 -1,030 -399 24 365 -2,900 -1,312
Portfolio investment -3,204 -3,566 -3,710 -4,296 -4,531 -10,068 -13,151
Interest -4,880 -5,064 -5,040 -5,111 -5,396 -16,816 -19,664
Dividends 1,675 1,498 1,330 815 866 6,748 6,513
Other investment -148 249 -1 -232 453 -2,548 -299
Current transfers -357 -696 -902 -42 -706 -585 -2,148
Private -829 -987 -1,004 -881 -950 -4,233 -3,719
Official 471 291 102 840 245 3,648 1,572
Current account -12,455 -13,770 -10,204 -8,460 -11,018 6,918 -43,523