By Dow Jones Business News, February 28, 2013, 10:32:00 AM EDT
--First narrowing since 3Q 2011
--Shortfall slims as exports grow, imports decline
--Annual deficit hits new record
(Adds comments from economist in paragraph 5.)
By Nirmala Menon
OTTAWA--Canada's current account deficit narrowed slightly less than expected in the fourth quarter, with the
shortfall in the goods account shrinking as exports increased and imports fell, though the gap hit a new record high for
all of 2012.
The deficit in October through December slimmed to a seasonally adjusted 17.26 billion Canadian dollars ($16.87
billion) from a revised C$18.04 billion in the prior three months, the first such narrowing since the third quarter of
2011, Statistics Canada said Thursday.
The consensus call was for the deficit to narrow to C$17.0 billion from the originally estimated C$18.91 billion in
the third quarter, according to a report from Royal Bank of Canada.
The current account is the broadest indicator of trade in goods and services. Canada has registered quarterly deficits
for four years now, primarily from a shortfall in the goods account. The deficit for 2012 was C$66.94 billion, wiping
out the previous high from 2010, with new peaks in the goods and services accounts.
Economists estimate the shortfall at around 3.8% of gross domestic product, a reading that's near historic levels.
That, according to CIBC World Markets Economist Emanuella Enenajor, underscores the vulnerability of the Canadian
dollar. The currency has traded around parity with the U.S. dollar in recent years because foreign investors have been
purchasing Canadian dollar assets, primarily government bonds, attracted by Canada's status as one of the few remaining
triple-A rated nations. But such capital flows "tend to be more fickle than trade flows" and can easily reverse in a so-
called risk-off environment as has been the case in recent days which saw the Canadian dollar weakening, Ms. Enenajor
said in an interview.
In the fourth quarter, the deficit in the goods account narrowed to C$2.78 billion from C$5.09 billion as exports of
energy and agricultural increased and imports in major categories, including industrial machinery and motor vehicles,
The deficit in the services account shrank slightly to C$6.14 billion from a record C$6.23 billion previously as
imports of commercial services weakened. But the shortfall in the travel account increased as spending by Canadians on
visits to the U.S. outpaced spending by overseas travelers in Canada.
The deficit in investment income widened to C$6.93 billion from C$5.08 billion as foreign direct investors in Canada
earned more than Canadian direct investors abroad. Higher interest paid to foreign holders of Canadian bonds led to a
swelling of the deficit on portfolio investment income.
Write to Nirmala Menon at firstname.lastname@example.org
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