OTTAWA – Canada’s current account deficit remained at “near-record” levels at the end of 2012, despite dropping in the fourth quarter thanks mostly to increased exports to the United States.
BMO senior economist Benjamin Reitzes wrote in an analysis that “for a third straight quarter, Canada’s current account deficit was at near-record levels.”
He also suggested the deficit will at a high level for some time.
“With the U.S. economy only slowly picking up steam, as fiscal uncertainty muddies the outlook, and commodity prices down, Canada’s current account gap is expected to remain sizeable through 2013.”
“If the recent weakness in the Canadian dollar persists, that could provide some assistance, but at current levels, the loonie remains overvalued.
The Canadian dollar was down 0.46 of a cent to 97.29 cents US Thursday morning in the wake of the report.
Reitzes noted that for 2012 the current account deficit appears to have come in at about 3.9 per cent of gross domestic product, which he said was the second widest since 1981.
Statistics Canada said the current account deficit, which includes goods, services, compensation of employees, investment income and current transfers, stood at $17.3 billion, down $800 million.
Economists had expected a deficit of $17 billion, according to estimates compiled by Thomson Reuters.
TD Bank economist Leslie Preston said Canada’s relatively strong domestic economy has pulled in imports, while a softer global economy has hindered Canadian exports, but the deficit should continue to narrow.
“Early signs of improvement were seen in the fourth-quarter’s smaller current account deficit,” Preston said.
“However, one sore point in the fourth-quarter was the decline in imports, particularly in industrial equipment, which is a disheartening sign for the Canadian economy.”
Statistics Canada is expected to release the latest read on Canadian gross domestic product on Friday.
Economists expect annualized growth of 0.6 per cent for the fourth quarter of 2012.
Earlier this week, Bank of Canada governor Mark Carney cautioned that weak exports were weighing on the Canadian economy and suggested the fourth-quarter results could fall short of the central bank’s forecast for growth of one per cent for the last three months of 2012.
Statistics Canada said Thursday the country’s overall deficit on trade in goods fell by $2.3 billion to $2.8 billion, largely due to increased exports of energy products and farm, fishing and intermediate food products.
However, the goods surplus with the United States was up $2 billion on stronger exports in the fourth quarter.
Total exports of goods were up $1.7 billion to $114.5 billion in the fourth quarter, while total imports of goods were down $600 million to $117.3 billion.
The deficit on trade in services was reduced by $100 million in the fourth quarter from a high of $6.2 billion the previous quarter.
The investment income deficit increased $1.8 billion in the fourth quarter to $6.9 billion, boosted by increased dividend payments to non-residents.