Canada’s latest trade data was an emotional rollercoaster, showing improvements rather than wiping them out. Statistics Canada (Stat Can) published data for the Q3 2023 current account, which shows the balance of goods and services trade. Some improvements were observed, but not enough to counter the rapid outflow of investment occurring. One of the country’s largest banks warned this data indicates even further downside risk to GDP.
Canada’s Current Accounts Are Still In A Deficit, But Oil Prices Help
Canadian current accounts saw a slight improvement, but not as much as most had hoped. The deficit was $3.2 billion in Q3, meaning the balance of trade was not in the country’s favor. This was the third consecutive quarter to post deficits, including Q2’s revision to a deficit of $7.3 billion.
“The Q3 shortfall is the smallest since the current account returned to deficit a year ago, but still came short of the consensus call for a modest surplus,” explained Shelly Kaushik, an economist at BMO.
Kaushik attributes any improvement to the trade of goods, which produced a mild surplus. This was largely due to elevated oil prices helping to push exports higher. They were countered by weak services and incomes though, helping to drive a deficit.
Analysts weren’t expecting a blowout, but the data led them to expect better numbers. “The surplus was much smaller than indicated by the monthly figures, suggesting downward revisions in the October report released next week,” she said.
Canada Attracts Less Money Than Companies Invest Abroad
Canada was able to attract billions in foreign investment. Foreign direct investment (FDI) into Canada reached $20.4 billion in Q3, nearly doubling the previous quarter. The cash mainly found its way into manufacturing, an ideal path for this kind of investment. It’s one of the avenues that helps increase output.
Unfortunately it was significantly less than the amount of cash flowing out of the country. Canadian companies sent $29.3 billion abroad, more than double the previous quarter. Significant investments were made in Canada, but not to the extent that domestic companies saw opportunities outside of the country.
This highlights a significant problem with the business environment, warns BMO. “The direct investment balance remains negative, highlighting the challenging economic environment in Canada and that domestic firms continue to look abroad,” explained Kaushik.
Adding, “ …this release fell short of expectations for a small surplus, suggesting downside risks to our call for modest growth in tomorrow’s Q3 GDP report.”
