OTTAWA — Canada’s current account performance with the rest of the world improved slightly in the latter part of 2011, but remains in a significant deficit for the third straight year.
With all data in, the country’s net income position covering merchandise trade, relative exchanges in services such as travel, and inflows and outflows of investments improved to a deficit of $48.3 billion in 2011, Statistics Canada said Thursday.
That was slightly weaker than expected and remains not far off the record $50.9-billion shortfall set in 2010.
The improvement came mostly in the final quarter, when a bump in merchandise trade help shrink the seasonally adjusted deficit by $2 billion to $10.3 billion.
That suggests Canada’s economy ended the year on a strong footing, said economist Francis Fong of TD Bank, who is calling for a better than consensus fourth-quarter output gain of 2.5 per cent when the figure is released Friday.
“Going forward, recent improvements in the European debt crisis and the U.S. economy could likely lead to further improvements in the current account deficit in the months ahead,” he said.
After about a decade of surpluses, 2011 was the third consecutive year of large shortfalls and — while the red ink is fading — analysts don’t expect a return to the positive side of the ledger any time soon.
For the year, the current account gap represents about 2.8 per cent of gross domestic product, not much better than the U.S.’s 3.1 per cent estimate.
Bank of Montreal economist Douglas Porter said it is encouraging that the deficit is shrinking, but the persistently high shortfall can sap the country’s economic strength if not addressed.
“I wouldn’t ignore this as an issue,” he said.
“We often boasted of having twin surpluses in this country both on the government side and on the trade side, and we’ve now had a twin deficit for three years and it looks like we’re going to stay there for a few more years.”
Canada’s economy has performed better than many advanced countries mostly because of domestic activity, including a strong housing market, Porter said. In competition with the rest of the world, the score is less flattering.
The big improvement in the fourth quarter was on the trade goods sides, which saw exports overtake imports by $3.1 billion on the strength of energy and auto shipments. For the year, trade posted a $1.4 billion surplus.
But that was swamped by the $24.6 billion deficit on the services side, including the travel gap.
As well, Canadian companies invested abroad in greater amounts that the foreign direct investment into the country, by about $5 billion.
Porter said the big difference between the net Canadian position today as opposed to before the recession is in merchandise trade, even though the category tipped into surplus in 2011 after back-to-back deficits.
He points out that in the heady days before 2008, it was not unusual for Canada to record trade surpluses of $50 and $60 billion.
“Part of the reason we’re running a big deficit is because U.S. demand has fallen like a rock,” he said, adding that the strong Canadian currency only exacerbates the problem.
In addition, the strong loonie has widened the travel balance as Canadians find foreign vacations less expensive and Americans find Canada more so.
Earlier in the week, Ontario Premier Dalton McGuinty complained that Canada’s “petro-dollar” was acting as a drag on manufacturing and was a net detriment economy.