The Canadian current account surplus came in below expectations in at $13 billion, down from a revised $15.7 billion. But economists see improvement ahead.

BMO Nesbitt Burns says that the lower-than-expected results reflect a downward revision to the merchandise trade surplus for both Q3 and Q4, and a wider-than-expected deficit on investment income. “For the year as a whole, the surplus still hit an all-time high of $29.1 billion, or 2.7% of GDP – an impressive performance in view of the big drop in U.S. demand last year.”

RBC Financial Group economists say the current account balance showed a marked deterioration in the fourth quarter because of low commodity prices. The trade sector proved the largest source of growth in real terms as the year drew to a close, it notes. “With the U.S. economy bouncing back, an improving trade balance could come as early as spring. Our forecast of 1.6% GDP growth, which was an outlier just a few months ago, may soon find itself right in the middle of consensus.”

CIBC World Markets agrees, noting, “Although the current account deficit slipped significantly in Q4, several factors could see the news improve somewhat in coming quarters. Commodity prices appear to have bottomed, with oil nosing its way back above $21 in recent weeks. Although Canada’s economy grew more strongly than expected in Q4, the US also fared considerably better, pointing to a recovery in non-energy exports. The recent composition of growth, moreover, is broadly favourable to the current account position. Yesterday’s investment intentions survey and this morning’s GDP report both point to continuing infirmity in capital spending which tends to be among the most import-intensive components of demand.”

BMO concludes, “The current account surplus was a bit of a disappointment in Q4, but isn’t a complete shock given the persistent strength of domestic consumer spending and weaker export prices. The surplus is likely to stabilize this year, as the U.S. economy revives and commodity prices emerge from the depths of late 2001.”