August 31, 2023 | 09:08
Sustaining Another Deficit
Canada’s current account deficit widened to $6.6 bln (-$26.5 bln a.r.), following a revised $3.2 bln shortfall (-$12.7 bln a.r.) in the first quarter.
The deterioration was driven by the first goods trade deficit in two years as lower commodity prices have weighed in recent quarters. The services trade deficit narrowed, helped by a small surplus in travel services (the first one in over a year) on less spending by Canadian travellers to the United States. The income surplus grew in Q2 as Canadians received more interest payments on foreign loans and deposits than foreign investors earned in Canada.
Foreign direct investment (FDI) into Canada slowed to $12.2 bln in Q2, its lowest level since the end of 2020 as activity in mergers and acquisitions slowed. Meanwhile, domestic companies’ direct investment abroad totalled $11.3bln, down from near-record levels in the prior quarter. In total, the net inflow amounted to $0.9 bln.
Bottom line: Canada’s current account deficit deteriorated but remains manageable at an estimated 0.9% of GDP (those figures are out tomorrow). Looking ahead, the rebound in commodity prices should support the current account balance in the third quarter, though a broader economic slowdown will weigh on trade volumes in the second half of the year.