Canada's balance of international payments

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Canada's overall current account deficit (on a seasonally adjusted basis) narrowed $5.9 billion to reach $11.0 billion in the fourth quarter, mainly on higher exports of goods as well as lower imports of goods.

In the capital and financial account (unadjusted for seasonal variation), non-residents continued to supply significant funds through the purchase of Canadian securities, largely corporate bonds and equities, in the fourth quarter. Strong Canadian direct investment abroad provided an offsetting outflow of funds in the quarter.

Current account

Trade balance returns to surplus

The balance on international trade in goods returned to a small surplus of $0.5 billion in the fourth quarter, following the largest recorded quarterly deficit. The $6.9 billion swing in the trade balance reflected reduced imports as well as increased exports.

The trade surplus on goods with the United States expanded in the fourth quarter after a 16-year low in the third quarter, largely on lower imports. Improved trade balances with countries other than the United States were mainly the result of higher exports.

Exports were up $5.8 billion in the fourth quarter. Increases in the export of goods were widespread and led again by industrial goods and energy products. These gains were partly offset by lower exports of automotive products.

Exports of industrial goods advanced $3.5 billion, as volumes and prices rose sharply. Metallic ores and precious metals recorded the largest growth, mainly on volumes. Higher volumes of crude petroleum exports accounted for the bulk of the $2.8 billion increase in energy products. Exports of natural gas were down in value, despite higher volumes. A drop in exports of cars of $1.2 billion reflected both lower volumes and prices.

Imports of goods fell $1.1 billion during the fourth quarter, after advancing in each of the last five quarters. This was accounted for by reduced imports of automotive products, as volumes dropped for cars, trucks and parts. Changes were relatively minor for most of the other major import commodities.

Services deficit edges up

The overall deficit on trade in services expanded slightly in the fourth quarter, led by travel. The travel deficit moved to a new high, as payments continued to advance. Spending by Canadians in the United States was up 3.0%, in line with higher numbers of travellers. Canadian spending overseas increased at a slower pace while receipts from foreign travellers were largely unchanged.

The larger transportation deficit mainly reflected higher payments of passenger fares to foreign airlines. For commercial services, the surplus narrowed slightly as payments outpaced receipts.

Deficit for investment income up

In the fourth quarter, the investment income deficit increased by $1.1 billion, as payments advanced by more than receipts.

Profits earned by foreign direct investors in Canada advanced by $1.8 billion in the fourth quarter, mainly from higher undistributed earnings accruing from Canadian affiliates. The largest increase was in the energy sector as both distributed and non-distributed profits recorded significant gains in the fourth quarter. In addition, payments of interest on Canadian bonds continued to grow in line with the significant acquisitions of Canadian bonds by foreign investors since the beginning of 2009.

On the receipt side, profits earned by Canadians on their direct investments abroad were up $1.2 billion in the fourth quarter. This comprised both higher dividends received and undistributed earnings accruing from foreign affiliates.

Capital and financial account

Foreign investment in Canadian securities remains strong

Foreign investors added a further $27.3 billion of Canadian securities to their portfolios in the fourth quarter, again favouring debt instruments over stocks. This marked the eighth consecutive quarter of strong foreign investment in Canadian securities, resulting in an unprecedented foreign inflow of $116.2 billion in portfolio investment in 2010.

Foreign purchases of Canadian bonds slowed to $17.9 billion in the fourth quarter. More than half of this investment was directed to private corporate bonds, mainly new issues. Non-residents also continued to invest in federal and provincial bonds in the fourth quarter but at a slower pace. On an annual basis, federal and provincial government bonds attracted record funds from abroad.

Foreign investment in Canadian stocks strengthened to $7.0 billion in the fourth quarter, almost equally split between secondary market purchases and new issues of shares. New issues activity was mainly related to the financing of Canadian cross-border merger and acquisition transactions reflected in direct investment flows. Canadian stock prices were up 8.7% in the fourth quarter to reach their highest level since August 2008.

Non-residents also added $2.4 billion of Canadian money market instruments to their holdings in the quarter. Most of the foreign investment was directed to US dollar-denominated instruments issued by provincial governments, while foreign holdings of federal paper were down in the quarter for the first time in 2010.

Canadians add foreign bonds to their holdings

Canadian investors purchased $708 million of foreign securities in the fourth quarter, the lowest level of investment in 2010. Lower activity was primarily due to the first reduction in holdings of foreign equities in 2010, led by the sales of non-US foreign stocks. However, on an annual basis, Canadian investors added foreign shares to their portfolios for a 29th consecutive year.

Canadian investment in foreign bonds amounted to $4.0 billion in the fourth quarter. US corporate bonds and non-US foreign bonds drew most of the Canadian funds in the quarter, led by increased issues of maple bonds. For 2010 as a whole, Canadian investors further reduced their holdings of foreign bonds, but by lower amounts in comparison to 2008 and 2009.

Activity in cross-border direct investment picks up

Canadian direct investment abroad rebounded to reach $29.0 billion in the fourth quarter, the most such activity in almost three years. A significant portion of the funds injected into foreign enterprises in the quarter was related to cross-border merger and acquisition activities involving Australian firms. The remainder of the investment was directed mainly to other non-US countries. Despite this increased activity in the fourth quarter, Canadian direct investment in foreign economies in 2010 was the lowest since 2005.

Foreign direct investment in Canada was $11.9 billion in the fourth quarter, following a large divestment recorded in the previous quarter. Funds came predominantly from US and European foreign direct investors and targeted the Canadian resource sector. The fourth quarter closed the year with the least amount of foreign mergers and acquisitions activity in Canada since 2004.

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 fourth 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 first quarter of 2011 will be released on May 30.

For more information, or to order data, contact Client Services (613-951-1855; infobalance@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Denis Caron (613-951-1861; denis.caron@statcan.gc.ca), Balance of Payments Division.