Canada: Record financing needs last year – NBF

Krishen Rangasamy, Analyst at NBF, explains that while Canada’s current account balance improved marginally in 2017, it nonetheless remained deep in the red for the ninth consecutive year.

Key Quotes

“The current account deficit amounted to C$63.9 bn last year or roughly 3% of GDP as a smaller goods trade deficit was partly offset by a deteriorating services trade deficit. Financing needs were about double the size of the current account deficit. That’s because net FDI outflows surged to an all-time high as Canadian firms increased direct investment abroad a lot more than foreign firms did in Canada.”

“The large current account deficit combined with record FDI outflows meant that total financing needs for Canada last year topped C$130 bn for the first time ever. Those financing needs were, yet again, met by portfolio and other short term inflows, e.g. foreigners purchasing Canadian securities (particularly bonds and stocks) and/or depositing cash in Canadian bank accounts. Of course, continued dependence on short-term foreign capital increases the potential for volatility in the Canadian dollar because such flows could quickly increase or reverse, as opposed to foreign direct investment which is more stable.”