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Canada Second Quarter Current Account Report (Text)

Aug. 30 (Bloomberg) -- Following is the text of Canada’s current account report for the second quarter released by Statistics Canada.

Canada’s current account deficit (on a seasonally adjusted basis) expanded $5.9 billion to $16.0 billion in the second quarter, mainly on lower exports and higher imports of goods.

In the capital and financial account (unadjusted for seasonal variation), funds continued to flow into the Canadian economy, led in the second quarter by purchases of government debt securities.

Current account

Balance on trade in goods returns to a deficit

The overall goods balance posted a $3.6 billion deficit in the second quarter, following three quarter of surpluses. A combination of lower exports, especially energy products, and higher imports led to a $5.9 billion deterioration in net trade on goods in the quarter. This largely reflected trade with the United States, as the goods surplus narrowed by $5.5 billion to $9.9 billion, its lowest level since the fourth quarter of 2010.

Total exports of goods were down $3.6 billion as international sales of energy products fell by $4.5 billion. This reflected much lower exports of crude petroleum to the United States in the second quarter on lower prices and volumes, after record sales in the first quarter. Industrial goods declined $0.5 billion, mostly on lower volumes of metal ores, despite stronger exports of fertilizer and fertilizer materials. Machinery and equipment exports advanced $0.8 billion, led by increased aircraft sales. Automotive products exports were up $0.5 billion, split between cars and automotive parts.

Imports of goods expanded $2.3 billion in the second quarter. Automotive products were up $1.1 billion with over one half from higher imports of automotive parts. Machinery and equipment was up $0.9 billion while consumer goods advanced $0.6 billion, the increases being spread across almost all components of these two categories. Energy products declined $0.8 billion, mostly on lower prices.

Deficit on trade in services edges down

The overall deficit on trade in services shrank $0.2 billion in the second quarter to $6.2 billion. Exports of commercial services rose by $0.5 billion while imports were unchanged. This was partly offset by higher deficits for travel and transportation services as spending by Canadians on fares and travel expenses advanced.

Investment income deficit expands slightly

The deficit on investment income increased $0.2 billion to $5.5 billion in the second quarter. Interest received by Canadian banks on their foreign investments was down while payments on Canadian bonds and money market instruments held by non-residents advanced. Profits earned by Canadians on their direct investment abroad declined. However, lower profits earned on foreign direct investment in Canada moderated the increase in the deficit.

Capital and financial account

Foreign acquisitions of Canadian debt securities strengthen

Non-resident investors increased their holdings of Canadian securities by $28.4 billion in the second quarter, up from $6.1 billion in the first quarter. Foreign acquisitions focused on government debt securities with most of the activity recorded in May, against a backdrop of significant declines in major global stock markets.

Foreign investors acquired $17.9 billion of Canadian bonds in the second quarter, on par with the quarterly average investment observed since the first quarter of 2009. These inflows were led by secondary market purchases of federal bonds and, to a lesser extent, acquisitions of new provincial bonds. Large retirements of maturing bonds in June moderated the increase in foreign holdings of Canadian bonds in the second quarter.

Activity in the Canadian money market rebounded as non-residents acquired $10.2 billion of Canadian paper, following a divestment of $7.8 billion in the first quarter. Investment targeted paper from the federal and provincial sectors, largely reflecting net new issues of Canadian Treasury bills in the quarter. The differential between long- and short-term yields in Canada narrowed by 34 basis points in the quarter.

Foreign holdings of Canadian equities edged up $0.2 billion in the second quarter, as acquisitions of new Canadian shares were moderated by a second straight quarterly divestment on the secondary market. Canadian stock prices were down by 6.4% in the second quarter, with most of the losses recorded in May.

Canadian investors acquire foreign securities at a slower pace

Canadian investment in foreign securities was $2.6 billion in the second quarter, the lowest such activity in a year. Investors added foreign stocks and bonds to their holdings but removed foreign paper from their portfolio for a fifth straight quarter.

Investment in foreign stocks slowed to $2.1 billion from $10.0 billion in the first quarter, with acquisitions in the second quarter targeting the US stock market. Canadian investors resumed their purchases of foreign bonds, mostly US corporate debt denominated in Canadian dollars. The divestment in foreign paper was mainly attributable to retirements, which led to a further reduction in holdings of government short-term instruments.

Foreign direct investment slows on lower mergers and acquisitions activity

Foreign direct investment in Canada was $9.2 billion in the second quarter, down from $15.4 billion in the first quarter. Cross-border mergers and acquisitions were at their lowest level since the third quarter of 2011 and accounted for all the reduction. Canadian direct investment abroad was down by half to reach $4.7 billion, also on lower mergers and acquisitions. This was the third straight quarter of lower outward direct investment.

Note to readers

The historical revision to the Canadian National Accounts is scheduled for release beginning in October 2012. Information on Canada’s Balance of International Payments new CANSIM tables (http://sna/nea-cen/hr2012-rh2012/data-donnees/cansim/tables-tableaux/bop-bdp/c-eng.htm) and output formats (http://sna/nea-cen/hr2012-rh2012/data-donnees/publications/tables-tableaux/bop-bdp/tab-eng.htm) is now available on the National economic accounts website.

The current account data in this release are seasonally adjusted. For more information on seasonal adjustment, see Seasonal adjustment and identifying economic trends (http://www.statcan.gc.ca/pub/11-010-x/2010003/part-partie3-eng.htm).

The balance of international payments covers all economic transactions between Canadian residents and non-residents in two accounts, the current account and the capital and financial account.

The current account covers transactions in goods, services, investment income and current transfers.

The capital and financial account mainly comprises transactions in financial assets and liabilities.

In principle, a current account surplus/deficit corresponds to an equivalent net outflow/inflow in the capital and financial account. In practice, as international transactions data are compiled from multiple sources, this is rarely the case and gives rise to measurement error. The statistical discrepancy is the unobserved net inflow or outflow.

For more information about the balance of payments, consult the “Frequently asked questions (http://www.statcan.gc.ca/nea-cen/faq-foq/bp-eng.htm) " section in the National economic accounts module of our website. The module also presents the most recent balance of payments statistics.

SOURCE: Statistics Canada {WEB STCA <GO>}

To contact the reporter on this story: Ilan Kolet in Ottawa at ikolet@bloomberg.net

To contact the editor responsible for this story: Marco Babic at mbabic@bloomberg.net

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