Canada’s current account surplus dropped $2.4 billion on a seasonally adjusted basis in the first quarter to $10.7 billion as a result of a sharp drop in the value of energy exports, which was very high in the fourth quarter of 2005, according to Statistics Canada.

However, the current account surplus remained well above the $8.5 billion that economists had anticipated.

The surplus on trade in goods fell by $3.3 billion to $17.2 billion in the first quarter as lower prices for natural gas tempered Canada’s exports of energy products after reaching a record level in the fourth quarter of 2005, StatsCan reports.

Exports of goods fell $4.7 billion in the quarter with exports of energy products leading the way as lower prices pushed down the export values for these products by $4 billion. Prices of natural gas also decreased by nearly 30% after strong increases during the previous two quarters, StatsCan notes.

During the last three quarters, the value of energy products represented on average over 20% of all exports, compared to less than 16% in 2004, it reports.

Automotive product exports were down by $1 billion in the first quarter.

Total imports of goods dropped more modestly in the quarter — as the volume of crude oil purchases declined — falling by $1.4 billion, and again energy products accounted for the largest share. However, the drop in imports of energy products came mainly from lower volumes, not through lower prices, as was the case for the exports of energy products, StatsCan says.

Meanwhile, lower profits earned by foreign investors on their direct investments in Canada, combined with lower interest payments on portfolio bond liabilities, were the two main factors behind the $1.3 billion decrease in the investment income deficit. The $2.3 billion deficit in the first quarter was the lowest since 1978.

Following two strong quarters, profits earned by foreign direct investors decreased $2.4 billion in the first quarter of 2006. Although still important, lower profits in the energy sector accounted for half of this drop.

Nevertheless, foreign direct investment in Canada advanced strongly for a third consecutive quarter. Although less than the previous two quarters, the $12 billion of direct investment was again largely due to acquisitions.

Foreign investors bought $8.2 billion worth of Canadian securities led by purchases of outstanding Canadian equities. It was the largest net investment in Canadian securities by foreign investors in the last five quarters.

The $8.1 billion net foreign investment in Canadian equities was led by the acquisition of $10.6 billion of outstanding Canadian shares by non-residents.

Non-residents sold Canadian bonds for a third consecutive quarter. The divestment of $1.9 billion in the quarter was largely the result of net retirements (retirements less new issues).

The first quarter also saw lower profits earned by Canadians on their direct investment abroad. As the decline was only $1.2 billion, the balance for income on direct investment swung to a positive value for the first time since the first quarter of 1994.

During the quarter, Canadian investors bought a record amount of foreign securities consisting of debt instruments and equities. Over half of the $19 billion investment in the first quarter was in foreign bonds, itself a record.

Some $9.9 billion flowed into foreign bonds, with 60% of the investment going to U.S. treasuries and corporate bonds. The remaining $3.9 billion was invested in overseas bonds. A sizable portion of the record investment in foreign bonds consisted of “Maple” bonds, which are foreign issues denominated in Canadian dollars.

Canadians purchased $8 billion of foreign equities in the quarter, the second highest quarterly investment in the past four years. In the first quarter, Canadian direct investment in foreign economies was just over half of that of the previous quarter, at $6.6 billion.

Canadians sold off more direct investment assets overseas than they acquired during the quarter, resulting in negative net acquisitions.