Canada's balance of international payments, fourth quarter 2015

Imports of goods were down $2.6 billion to $136.7 billion. As with exports, the most notable decline was recorded in imports of energy products

Ottawa - Canada's current account deficit (on a seasonally adjusted basis) edged up $0.1 billion in the fourth quarter to $15.4 billion. On an annual basis, the current account deficit increased from $44.9 billion in 2014 to $65.7 billion in 2015.

In the financial account (unadjusted for seasonal variation), transactions in the other investment category, mainly in the form of currency and deposits, led the inflow of funds into the economy in the quarter. These inflows were moderated by record Canadian investment in foreign securities.

Current account

The deficit on trade in goods narrows

The deficit on international transactions in goods narrowed by $0.3 billion to $4.8 billion, as imports declined more than exports in the fourth quarter. However, for the year, the goods balance reached a record $23.6 billion deficit after posting a slight surplus in 2014. This change largely reflected a $44.8 billion decline in exports of energy products.

On a regional basis, the goods surplus with the United States was down by $2.4 billion in the fourth quarter, mainly on lower exports of energy products. On the other hand, the trade deficit with all other countries narrowed by $2.6 billion, led by a stronger surplus with the United Kingdom.

Total exports of goods declined $2.3 billion to $131.9 billion in the quarter. Exports of energy products were down by $2.3 billion mainly on lower prices. Crude petroleum accounted for the bulk of this reduction, as exports reached their lowest level in more than five years. Crude oil prices have fallen more than 40% since the fourth quarter of 2014. Exports of aircraft and other transportation equipment fell $0.6 billion during the quarter, as a result of lower volumes. Basic and industrial chemical, plastic and rubber products also contributed to the overall decline, with exports down $0.5 billion on lower prices. Partially offsetting these reductions was a $1.0 billion gain in motor vehicles and parts, largely on higher volumes and prices for passenger cars.

Imports of goods were down $2.6 billion to $136.7 billion. As with exports, the most notable decline was recorded in imports of energy products, which fell $1.5 billion on lower prices and volumes. Electronic and electronic equipment and parts also accounted for an important share of the decrease, declining $0.7 billion after a strong third quarter.

Trade in services deficit edges down

The overall deficit on international trade in services narrowed $0.1 billion to $5.8 billion in the fourth quarter. In the quarter, the travel deficit was down $0.1 billion to $4.0 billion as Canadians further reduced their spending in the United States. The travel deficit narrowed in each of the four quarters in 2015. The transportation services deficit also narrowed in the quarter, but the reduction was offset by a lower commercial services surplus.

For 2015 as a whole, the deficit increased slightly to $23.8 billion, reflecting a reduction in the commercial services surplus, which was moderated by a lower deficit on international travel.

Deficits on investment income and current transfers expand

The investment income deficit edged up $0.1 billion to $3.4 billion in the fourth quarter. For the year as a whole, the investment income deficit narrowed by $8.3 billion to $13.4 billion, largely on lower profits earned by foreign direct investors in Canada.

Profits earned by Canadian direct investors on their assets abroad were down $1.5 billion in the fourth quarter, while those earned by foreign direct investors on their Canadian assets declined $0.5 billion. At the same time, receipts from portfolio investment advanced more than payments, moderating the overall increase in the investment income deficit in the fourth quarter.

The deficit in current transfers rose $0.3 billion to $1.0 billion. Government transfer receipts were down more than payments in the quarter.

Financial account

Canadian investment in foreign securities hits record high

Canadian investors acquired a record $37.1 billion of foreign securities in the fourth quarter, led by strong investment activity in November and December. Nearly two-thirds of these purchases were in US instruments. On an annual basis, Canadian investment in foreign securities totalled $60.3 billion in 2015. This was the largest such outflow of funds since 2006, before the global financial crisis.

Canadian investors added $22.9 billion of foreign debt securities in the fourth quarter, led by record acquisitions of US Treasury bonds. At the same time, Canadian investors purchased $14.1 billion of foreign shares, almost evenly split between US and non-US instruments.

Foreign acquisitions of Canadian securities resume

Foreign investment in Canadian securities resumed in the fourth quarter, reaching $20.6 billion. Foreign acquisitions of Canadian bonds totalled $7.2 billion during the quarter, all bonds denominated in foreign currencies. Non-resident investors acquired $4.1 billion of Canadian money market instruments. This activity was led by purchases of US dollar-denominated instruments, mainly issued by Canadian private corporations.

Non-resident investors added $9.3 billion of Canadian equities to their holdings in the fourth quarter, following a divestment in the third quarter. Canadian stock prices were down 2.2%, and the Canadian dollar depreciated by 2.7 US cents against the US dollar in the quarter.

On an annual basis, foreign investment in Canadian securities was up compared with the previous two years to $95.5 billion. Overall, portfolio investment generated a net inflow of funds into the Canadian economy of $35.2 billion in 2015 and contributed in part to the financing of the current account deficit. The Canadian dollar lost 14.0 US cents against the US dollar in 2015.

Outward and inward direct investment slow in the quarter

Transactions in direct investment assets totalled $10.7 billion in the fourth quarter. Canadian investment in foreign affiliates in the form of equity was the main contributor, reaching $16.4 billion. However, Canadian affiliates reduced their assets in the form of debt instruments contracted by their foreign parents.

On the other side of the ledger, direct investment liabilities generated an inflow of $8.9 billion in the fourth quarter. Equity investment in Canadian affiliates of $22.3 billion was partially offset by a reduction in debt liabilities of Canadian affiliates to their foreign parents.

Cross-border mergers and acquisitions, both inward and outward, were down significantly from the previous quarter.

For the year, outward direct investment reached a record $104.3 billion in 2015, led by strong mergers and acquisitions activity. Inward direct investment totalled $80.6 billion. As a result, the direct investment account recorded a net outflow of funds of $23.7 billion, the second highest on record. This activity contrasted with net inflows of funds recorded in the two previous years.

The other investment category generates inflow of funds from abroad

The other investment category of the financial account generated a net inflow of funds of $29.3 billion in the fourth quarter. A large increase in currency and deposits held by non-residents in Canada, mostly foreign currency deposits, more than offset the increase in those held by Canadians abroad. Transactions in currency and deposits of Canadian banks with their foreign affiliates and branches accounted for most of this activity.

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