May 30, 2023 | 10:35
Cdn. Current Account (2023 Q1) — Sustainable Deficit
Canada's current account deficit narrowed more than expected in Q1, clocking in at $6.2 bln ($24.7 bln a.r.), from a revised $8.1 bln ($32.2 bln) shortfall in the prior quarter (initially -$10.6 billion, not annualized). The goods trade surplus narrowed a touch more than anticipated amid a pullback in commodity prices. The services trade deficit widened as the travel balance deteriorated with Canadians eager to resume trips abroad. The income balance was the big swing factor in the quarter, with the deficit narrowing by $2.5 bln as rising profits for Canadian direct investors outpaced those earned by foreign direct investors in Canada.
Foreign direct investment inflows jumped to $23.9 bln in the quarter, the largest since 2021Q4 and at the high end of the historical range. However, the increase was dwarfed by a $57.9 bln surge in outflows, which was concentrated in the financial sector. Note that the outflow was the second largest on record, second only to 2021Q4. While the direct investment balance was deeply negative, inflows pushing higher is an encouraging sign—with respect to the attractiveness of doing business in Canada—after they slowed through the middle of last year.
Bottom Line: Canada's current account balance, the broadest measure of trade, saw a narrower deficit in Q1 despite a pullback in commodity prices. Clocking in at 0.9% of GDP, the current account deficit is very manageable and is expected to stay that way if commodity prices can at least tread water.