Canada's balance of international payments, Fourth quarter 2012

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Canada's current account deficit (on a seasonally adjusted basis) decreased $0.8 billion to $17.3 billion in the fourth quarter. The reduction to the goods deficit was partially offset by the increase of the investment income deficit.

Chart 1 
Current account balances
Chart 1: Current account balances

Chart description: Current account balances

CSV version of chart 1

In the financial account (unadjusted for seasonal variation), transactions in loans and deposits accounted for most of the inflows in the quarter, as inward and outward transactions in both securities and direct investment were largely offsetting. This contrasted with the general trend observed since 2009, where net inflows in the form of securities have been the main contributor to the financing of the ongoing current account deficit.

Current account

Deficit on trade in goods narrows

The deficit on trade in goods was reduced by $2.3 billion in the fourth quarter to $2.8 billion. This largely reflected increased exports, led by energy products and by farm, fishing and intermediate food products. The goods surplus with the United States was up $2.0 billion on stronger exports in the fourth quarter, although for the year 2012, it was reduced by $6.8 billion to $42.1 billion. The deficit on goods with all other countries reached a record of $54.0 billion in 2012, up $6.0 billion from 2011.

Chart 2 
Goods balances by geographic areas
Chart 2: Goods balances by geographic areas

Chart description: Goods balances by geographic areas

CSV version of chart 2

Total exports of goods were up $1.7 billion to $114.5 billion in the fourth quarter. Energy products accounted for $1.6 billion of this increase, led by higher prices as volumes were down. However, the crude petroleum portion of energy reflected both higher prices and volumes. Higher export volumes of canola and of other crop products contributed to the $1.1 billion increase for farm, fishing and intermediate food products. Increases were moderated by a reduction in the exports of metal ores and non-metallic minerals, mainly on lower volumes.

Total imports were down $0.6 billion to $117.3 billion in the fourth quarter. Volumes were down for several major categories of goods, leading to reductions in imports of industrial machinery (-$0.5 billion) and motor vehicles (-$0.4 billion). Chemicals products and forestry products were also down. These import reductions were partially offset by higher imports of energy products, which increased $0.7 billion through stronger prices and volumes, as well as by higher volumes of aircraft and other transportation equipment (+$0.4 billion).

Trade in services deficit edges down

The deficit on trade in services was reduced by $0.1 billion in the fourth quarter from a high of $6.2 billion the previous quarter. For the year 2012, the deficit in trade in services reached a new high at $24.6 billion, mostly on the travel account.

Commercial services and travel accounted for the majority of changes in the fourth quarter. The surplus on commercial services edged up $0.1 billion, as imports weakened in the fourth quarter. Increased spending by Canadians on visits to the United States was partially offset by larger spending by overseas travellers coming to Canada. This resulted in a slight increase in the deficit on international travel to $4.6 billion.

Investment income deficit expands

The deficit on investment income advanced $1.8 billion in the fourth quarter to $6.9 billion. This mainly reflected increased earnings of non-residents on their foreign direct investment in Canada, which advanced $1.9 billion on higher dividend payments. On the other side of the ledger, earnings on Canadian direct investment abroad were up $0.3 billion. Higher interest paid to foreign holders of Canadian bonds pushed the deficit on portfolio investment income up a further $0.2 billion.

Financial account

Foreign portfolio investors continue to acquire Canadian debt securities but divest of equities

Foreign investors added $16.3 billion of Canadian securities to their holdings in the fourth quarter, half the level of the previous quarter. Acquisitions of Canadian debt securities remained robust at $22.4 billion, but were partly offset by a sizable decline in foreign portfolio holdings of Canadian equities.

Chart 3 
Foreign investment in Canadian securities
Chart 3: Foreign investment in Canadian securities

Chart description: Foreign investment in Canadian securities

CSV version of chart 3

Non-resident investors increased their holdings of federal debt instruments by $12.4 billion in the fourth quarter, adding both short and long-term instruments. Retirements and coupon payments in December moderated the inflows. Foreign holdings of private corporate debt securities were up by $13.3 billion, on the strength of net new issues of bonds. This closed another year of strong foreign investment in Canadian debt securities as non-residents added $82.2 billion worth to their holdings, with federal bonds accounting for nearly 40% of these transactions.

Foreign portfolio investors reduced their holdings of Canadian equities by $6.1 billion in the fourth quarter, the largest divestment since the fourth quarter of 2007. This was related to cross-border mergers and acquisitions activity, with non-resident portfolio investors rendering their Canadian shares to foreign direct investors. Foreign purchases of Canadian stocks on the secondary market slowed to $0.7 billion. Canadian stock prices were up by 0.9% in the fourth quarter, following a 6.2% increase in the third quarter.

Canadian investment in foreign securities increases further

Canadian investors acquired $17.0 billion of foreign securities in the fourth quarter, the largest investment since the second quarter of 2007, just before the onset of the global credit crisis. Over three-quarters of this activity was in foreign bonds, mainly US government instruments. This was partially offset by retirements of maple bonds.

Canadian investment in foreign stock markets slowed to $4.7 billion, marking an eighth straight quarter of investment. Acquisitions were led by US stocks. On an annual basis, Canadians acquired the largest amount of foreign securities in five years, as they increased their holdings of bonds for the first time during this period. As of the third quarter of 2012, nearly 80% of Canadian holdings of foreign securities were in equity.

Chart 4 
Canadian investment in foreign securities
Chart 4: Canadian investment in foreign securities

Chart description: Canadian investment in foreign securities

CSV version of chart 4

Inward direct investment led by mergers and acquisitions

Foreign direct investment in Canada was $14.9 billion in the fourth quarter, up from $8.0 billion in the third quarter. Inflows reflected strong merger and acquisition transactions, the largest such activity since the second quarter of 2011. Foreign direct investors from Europe accounted for most of the investment in the country.

Outward direct investment moderates, but remains strong

Funds sent abroad by Canadian direct investors eased to $16.8 billion, following a strong third quarter. Outflows related to mergers and acquisitions were reduced to $4.4 billion from $10.7 billion in the third quarter. Outside of mergers and acquisitions, the energy and mining sector was also lower. Nevertheless, Canadian direct investment abroad has exceeded foreign direct investment in Canada for a fifth straight year in 2012.

Transactions in loans and deposits generate inflows of funds

Transactions in the other investment category of the financial account generated a net inflow of $17.3 billion in the fourth quarter. This was the second straight quarter of expansion in Canadian deposit liabilities at $26.5 billion, mostly reflecting an increase in foreign currency deposits held by non-residents. As well, loans to non-residents through reverse repurchase agreement transactions led to a reduction on the asset side in the fourth quarter.

Note to readers

The balance of international payments covers all economic transactions between Canadian residents and non-residents in three accounts: the current account, the capital account, and the financial account.

The current account covers transactions in goods, services, compensation of employees, investment income and current transfers.

The current account data in this release are seasonally adjusted. For more information on seasonal adjustment, see Seasonal adjustment and identifying economic trends.

The capital account covers capital transfers and transactions in non-produced non-financial assets.

The financial account comprises transactions in financial assets and liabilities.

In principle, a net lending (+) / net borrowing (-) derived from the sum of the current and capital accounts corresponds to a net lending (+) / net borrowing (-) derived from the financial account. In practice, as data are compiled from multiple sources, this is rarely the case and gives rise to measurement error. The discrepancy (net errors and omissions) 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.

Available in CANSIM: tables CANSIM table376-0012, CANSIM table376-0013, CANSIM table376-0101 to 376-0108, CANSIM table376-0121, CANSIM table376-0122 and CANSIM table376-0124.

Definitions, data sources and methods: survey numbers survey number1534, survey number1535, survey number1536 and survey number1537.

The balance of international payments data for the first quarter will be released on May 30.

For more information, contact us (toll-free 1-800-263-1136; or Media Relations (613-951-4636;

To enquire about the concepts, methods or data quality of this release, contact Denis Caron (613-951-1861;, Balance of Payments Division.