Canada's current account deficit (on a seasonally adjusted basis) narrowed by $2.0 billion in the fourth quarter to $10.3 billion, largely the result of an increase in the export of goods.
For 2011, the current account deficit declined to $48.3 billion following a record high of $50.9 billion in the previous year.
Current account balances
In the capital and financial account (unadjusted for seasonal variation), foreign investment in Canadian government debt securities was the main supply of funds to the Canadian economy. Foreign investment in Canadian securities was $95.6 billion in 2011.
Largest trade in goods surplus since third quarter of 2008
The surplus on trade in goods increased to $3.1 billion in the fourth quarter of 2011. This was the largest surplus since the third quarter of 2008, and was the result of stronger exports of energy products and automotive products. Exports to the United States rose by $5.9 billion leading to a $4.0 billion increase in the goods surplus with that country.
Goods balances by geographic area
For the year as a whole, the trade balance shifted to a $1.4 billion surplus after two back-to-back years of deficit.
Total exports of goods were up $6.7 billion in the fourth quarter to $121.5 billion, the highest level since the third quarter of 2008. The $4.1 billion increase in exports of energy products reflected a rise in crude petroleum exports, mostly on higher prices. Exports of automotive products were up $1.9 billion, with all the gains from higher volumes of automobiles. Exports of agricultural and fishing products advanced for a third straight quarter, on higher prices.
Imports of goods increased $3.8 billion to $118.3 billion. Energy products were up $1.8 billion mostly on higher volumes of crude petroleum. Imports of machinery and equipment rose by $1.3 billion, mainly because of higher prices.
Deficit on trade in services edges up
The services deficit edged up $0.1 billion to $6.2 billion in the fourth quarter. This increase was led by a lower commercial services surplus and a higher transportation deficit, largely accounted for by lower receipts on both accounts. This result was partially offset by a reduction in the travel deficit of $0.2 billion as Canadians lowered their payments on travel abroad, especially to the United States.
On an annual basis, the services deficit of $24.6 billion for 2011 arose mainly from increased deficits on travel and transportation accounts.
Investment income deficit increases on higher payments
The deficit in cross-border investment income flows was up $0.6 billion to $6.0 billion, as payments outpaced receipts in the fourth quarter. Profits earned by foreign direct investors in Canada increased $1.1 billion to $11.4 billion—the highest level since the second quarter of 2008. This largely reflected increased un-remitted earnings of Canadian affiliates. On the other hand, profits earned abroad by Canadian direct investors edged down in the quarter.
Annually, the investment income deficit increased $4.6 billion in 2011, mainly on the growth of profits from foreign direct investment in Canada relative to those of Canadian direct investment abroad. Payments on portfolio investment rose 7% in 2011, which reflected higher non-resident holdings of Canadian securities and led to a fourth consecutive increase of the portfolio investment income deficit.
Capital and financial account
Foreign investors acquire Canadian securities for a 12th straight quarter
Non-residents continued to increase their holdings of Canadian securities with a $26.1 billion investment in the fourth quarter. This level of activity was in line with the average quarterly investment observed since the first quarter of 2009. Over 80% of the purchases in the quarter were in the Canadian debt market, largely in government instruments.
Foreign portfolio investment in Canadian debt securities
Foreign acquisition of Canadian bonds was $11.4 billion, led by purchases of federal and provincial bonds on the secondary market.
This activity was moderated by net retirements of provincial and private corporate bonds. Foreign investment in Canadian bonds was $42.9 billion in 2011 and was less than half the inflow of the previous year, as the pace of investment in both government and corporate bonds slowed compared with 2009 and 2010.
Non-resident investment in the Canadian money market slowed to $9.8 billion in the fourth quarter from $16.2 billion in the third quarter. Transactions were led by acquisitions of federal Treasury bills. Foreign purchases of Canadian short-term instruments increased in the second half of the year to a high of $32.0 billion in 2011. The differential between long- and short-term interest rates in Canada narrowed progressively over the year to be, by the end of December, at their lowest level since August 2008.
Foreign investment in Canadian equities was $5.0 billion in the fourth quarter. Most of the activity took place in the last two months of the year as Canadian stock prices declined. Canadian equity prices were down 11% over the course of the year. Non-resident investors added $20.7 billion of Canadian portfolio shares to their holdings in 2011, largely through secondary market transactions.
Canadians invest in foreign bonds for the first time in 2011
Canadians acquired $7.8 billion in foreign securities in the fourth quarter, the largest quarterly outflow of the year. Investment was focused in foreign bonds and stocks, as holdings of foreign money market instruments were further reduced over the quarter.
Canadian portfolio investment abroad
Canadian investment of $5.0 billion in foreign bonds in the quarter was the largest since the second quarter of 2007 and was primarily composed of US government and corporate issues. This outflow was moderated by a $1.2 billion Canadian divestment in foreign money market instruments, mainly US paper. Despite increased investment in the fourth quarter, Canadians reduced foreign bonds from their portfolios for a fourth straight year in 2011.
Canadian investment in foreign stocks slowed again, but remained relatively strong at $4.0 billion. For the first time in 2011, acquisitions by investors were primarily targeted at non-US foreign shares. US stock prices were up 11% in the quarter while other major foreign stock markets also increased, but at a slower pace. For the year, foreign equity purchases were $25.5 billion, almost double that of 2010.
Inward and outward direct investment slow
Foreign direct investment in Canada slowed to $3.4 billion in the fourth quarter. Inflows in the quarter were led by European direct investors, mainly from merger and acquisition transactions. This activity was partially offset by a rare repatriation of funds from the Canadian economy by US direct investors. Foreign direct investment in Canada increased to $40.3 billion in 2011, with most of the activity concentrated in the first half of the year.
Canadian direct investment abroad declined to $13.1 billion in the fourth quarter from $17.1 billion in the previous quarter. These outflows originated primarily from the finance and from the energy and metallic mineral sectors. Investment for the year was up by $5.5 billion to $45.2 billion, despite the lowest level of cross-border mergers and acquisitions in five years. Outward direct investment was led by the finance sector in 2011.