Canada’s current account surplus swelled significantly in the third quarter, Statistics Canada reports. The surplus and came in much stronger than consensus expectations, rising $2.3 billion to $7.3 billion. It is the highest surplus since the second quarter of 2001.

Markets had been expecting about $6 billion. The big gain pushes the surplus to an annualized rate of $29.3 billion from $20.2 billion the second quarter.

An improved surplus on goods trade was the main factor, along with lower deficits for trade in services and investment income.

“This measure of the balance of payments on merchandise trade, services, and investment income was much wider than expected in Q3, and remains at very healthy levels,” says BMO Nesbitt Burns. “In contrast to the U.S. current account deficit of around 5% of GDP (or US$550 billion), the Canadian surplus in Q3 was 2.4% of GDP.”


RBC Financial notes that “Against the headline’s optimism, however, there were some sources of concern in this morning’s update. While Canada’s overall balance of trade improved, the details flag some important underlying risks as exports were flat and would have declined if not for energy and forestry product prices, imports fell which reflected weak demand from within Canada, and foreign direct investment in the Canadian economy soured to its worst level in more than eight years.”

RBC says that the goods surplus increased to $15.5 billion because imports fell by $2.1 billion while exports remained unchanged.

In a separate release, StatsCan says that corporate profit growth resumed in the third quarter, despite the crippling effects of the August power outage in Ontario. Operating profits rose 3.7% to $41.6 billion. They had risen for five consecutive quarters, prior to the second quarter’s 8.5% slide, prompted by a downturn in crude oil prices.

“That’s not as strong as the U.S. results, but a solid performance given Canada’s lacklustre GDP growth this year,” Nesbitt says.


Profits of motor vehicles and parts manufacturers were up in the third quarter, but remained substantially below the levels posted in the third quarter of 2002. Excluding the motor vehicle and parts industry, the manufacturing sector profits actually declined in the third quarter. Retailers enjoyed an upbeat quarter, as sales and profits increased across the board.

Looking through the numbers, RBC suggests that the stage is set for strong lagged positive effects on business credit quality well into 2004. “This provides a strong support for business investment. Indeed, with strong balance sheets, healthy profits, the early stages of an economic rebound, generally well behaved costs, a nearly one-quarter drop in the cost of importing machinery and equipment from the U.S. due to the Canadian dollar’s appreciation, and very favourable financing rates, overall economic conditions are very supportive of seizing hold of investment opportunities.”