The Canadian current account surplus contracted in the fourth quarter of 2002 and, for the year as a whole, was down 40% from 2001.

RBC reports that real exports of goods and services were down 8% and imports down only 1% in the fourth quarter, “shaving roughly three percentage points off the impressive annualized 3.8% increase in final domestic demand.”

“The Canadian current account surplus was much narrower than expected in the fourth quarter,” says BMO Nesbitt Burns. “The annualized balance of $13.2 billion was far lower than the consensus call of $18 billion and was the smallest surplus since 1999. Also, a downward revision to the Q3 surplus to $16.9 billion from $20.4 billion adds to the sour tone of the report. The full year reading for the current account was a surplus of $17.3 billion. However, to put it in perspective, this only pales when compared to the results of the prior two years, which averaged $29 billion.”

“Despite the recent trend towards smaller and smaller balances, a full-year surplus of $17.3 billion was still a very respectable amount of black ink,” says CIBC World Markets. “Moreover, at least in nominal terms, Canada’s goods trade surplus stands to get a sizeable boost from soaring crude oil and natural gas prices in the months ahead. Further aiding the outlook is anticipated U.S. inventory rebuilding, which will help counter still soft auto demand. The investment income deficit –the more important drag of late — should begin to see some improvement, once a firmer U.S. growth and earnings backdrop emerges in the second half, allowing Canadian investors to earn improved profits on their American direct investments.”

“Although the current account is not as singularly Canadian dollar positive as it had been, the surplus remains at healthy levels, and should widen again once the geopolitical situation has been resolved and the U.S. economy recovers,” concludes Nesbitt.