OTTAWA — Collapsing exports pushed Canada’s current account deficit to a record $11.2 billion in the second quarter, Statistics Canada said Friday.
Canada’s current account began contracting in the final quarter of 2008 as the country fell into recession and commodity prices plunged, reversing the surpluses that had become common over the previous decade.
Exports plunged $9.3 billion to $87.6 billion during the March-June period, outstripping the $6.8-billion decline in imports which totalled around $89.4 billion.
As a result, the overall goods balance posted about a $1.7-billion deficit, “the first since the first quarter of 1976,” the agency said.
The current account, a key part of Canada’s balance of payments with other countries, records the flow of goods and services between Canada and the rest of the world. It includes items such as merchandise imports and exports, and transactions like travel and tourist spending and banking.
Canada usually has a surplus on merchandise trade and a deficit on non-merchandise trade and an overall current account shortfall.
The other part of the balance of payments is the so-called capital account, made up of long- and short-term capital flows between Canada and other countries — things such as direct and portfolio investments, commercial paper transfers, foreign aid and export credit financing.
Persistent balance of payment deficits force countries to either cut imports, expand exports, attract more foreign investment or raise their foreign debt to balance their financial books with the world. In extreme cases countries are forced to seek help from the International Monetary Fund.
Although commodity prices have firmed in recent months, Bank of Montreal economist Douglas Porter said it is likely the shortfall will continue into the near future, in part because domestic demand for imports is also increasing and the strong loonie will continue to depress exports to the United States, Canada’s main trading partner.
“We don’t look for any rapid-fire rebound in Canada’s net trade position in coming quarters,” said Porter.
“The deficit was just shy of three per cent, not quite as dismal as the steady diet of four per cent shortfalls seen through much of the early 1990s, but a massive swing from the string of surpluses in the past ten years.”
Still, the deficit is larger in relative terms than the U.S. trade deficit, the first time that has occurred since 1997.
“That is not entirely bad news,” Porter added, ”as a smaller U.S. trade gap is a big part of correcting global imbalances.”
While the deficit is expected to remain until at least next year, Krishen Rangasamy of CIBC World Markets noted that it likely will start to narrow in upcoming quarters.
Still, he said the existence of a shortfall will start putting pressure on the Canadian dollar, a development that the Bank of Canada favours.
”The lofty Canadian dollar is living on borrowed time, or rather borrowed money,” said Rangasamy.
The second quarter was on expectations, but the better than previously reported first quarter deficit makes this “a better than expected overall report,” said Derek Holt of Scotia Capital.
“Yes it’s a record quarterly current account deficit, but the drag effect from trade in Q1 growth figures will be revised to be a touch better than previously thought,” said Holt.
Canada’s current account balance fell to its first deficit in nine years in the final quarter of 2008, reaching $7.5 billion, Statistics Canada reported in February.
Just last year, the Harper government had held up Canada as a model economy, the only member of the G7 with both a current account — a measure of a country’s trade and investment power in the world — and a dozen years of unbroken budget surpluses.
But the recession hit the country hard, partly because of Canada’s dependence on exports of commodities, such as oil, metals and forestry products, that are no longer in big demand.