Energy prices continue to boost trade surplus, StatsCan says

“As in the first quarter, overall cross-border activity in the second quarter occurred against the backdrop of rising interest rates and commodity prices. In addition, global equity markets sharply declined and the Canadian dollar appreciated against major foreign currencies, except the U.S. dollar,” StatsCan noted.

In this environment, the goods surplus came in at $12.5 billion for the second quarter, StatsCan said — its highest level since the days of the global financial crisis in 2008.

Goods exports rose by $23.1 billion in the second quarter to $204.8 billion, StatsCan said.

“The largest contributor was energy products, up $12.7 billion as prices increased 30.6% while volumes were slightly down,” it noted.

The value of goods imports also rose by $18.9 billion to $192.4 billion in the second quarter, with the increase coming in energy products, motor vehicles and parts, and consumer goods.

“The goods balance was firmer than reported in monthly data, suggesting we’ll see upward revisions to the past few months when the July trade figures are released next week,” noted BMO economists in a research note.

While the goods surplus expanded, this was partly offset by widening deficits in both services trade and investment income.

StatsCan reported that travel services experienced the first deficit since the onset of the pandemic in the second quarter, with nearly twice as many Canadians travelling abroad as in the first quarter.

This deficit is expected to grow even further in the months ahead as travel continues to pick up, BMO said.

The investment income deficit also widened by $3.3 billion in the second quarter to $4.6 billion, StatsCan said, “as payments increased by more than receipts.”

Again, high commodity prices were part of the story.

“Profits earned by foreign direct investors on their assets in Canada were up $2.8 billion, led by the energy sector,” StatsCan said, adding that foreign investors also saw higher interest income and dividends on their Canadian securities holdings.

“Earnings of Canadian investors on their assets abroad increased as well in the second quarter but at a slower pace,” it said.

Additionally, foreign investment in Canadian securities slowed significantly in the second quarter, StatsCan said, dropping from $74.0 billion in the first quarter to just $7.9 billion in the second quarter.

“This was the lowest level of investment since the fourth quarter of 2019. Investors increased their exposure to the Canadian bond market but reduced their holdings of equities and money market instruments,” StatsCan noted.

At the same time, Canadian investors added $17.9 billion worth of foreign securities in the second quarter, partially reversing a record divestment of $46.6 billion in the first quarter.

Finally, foreign direct investment generated a net outflow, StatsCan said, as foreign investment by Canadian companies increased and outpaced the rise in direct investment in Canada.

“Looking ahead, we expect strong commodity prices will continue to keep the current account in surplus into next year,” BMO concluded.