Canada current account surplus rises to C$8.36 bln

Aug 30, 2007 - Canada's current account surplus widened in the second quarter to C$8.36 billion ($7.86 billion) as the trade surplus swelled for a third straight quarter, despite the strong Canadian dollar.

Statistics Canada said on Thursday that was up from C$6.11 billion in the first quarter, revised down from C$6.49 billion. Analysts in a Reuters poll had forecast, on average, a surplus of C$8.5 billion in the second quarter.

The surplus was built partly on the back of lower imports of machinery and equipment, which economists said did not bode well for productivity improvements in the future.

"It's a bit discouraging that Canadian businesses don't seem to be taking advantage of what is arguably almost a perfect opportunity for investing in new machinery and equipment," Toronto-Dominion Bank's deputy chief economist, Craig Alexander, said. He said the strong currency made imports cheaper, and companies could have afforded to invest because of strong profits and low borrowing costs.

"You would have thought that all of these pieces would have fallen together to drive stronger business investment in machinery and equipment," he said, noting that Canada's productivity numbers have disappointed.

The surplus in goods reached its highest level since the fourth quarter of 2005, Statscan said, with a new high in exports of industrial materials combining with shrinking imports of machinery, equipment, automotive products and consumer goods.

However, Statscan said total exports in the second quarter were virtually at the same level as in the first quarter, due to declines in the export of other goods.

The services deficit declined for the second straight quarter as receipts from U.S. travel visitors increased. But the services deficit remained close to the record high registered in the fourth quarter of 2006.

"Overall, the surplus remains at quite healthy levels, despite the lofty loonie (Canadian dollar), as strong commodity prices, especially oil, are compensating for the deterioration in Canada's competitive position," BMO Capital Markets deputy chief economist Douglas Porter said.
The figures, all seasonally adjusted, feed into the quarterly gross domestic data that will be released on Friday at 8:30 a.m. EDT (1230 GMT).

The median forecast by analysts, taken in a Reuters survey last week before the current account data was released, is for annualized growth of 2.8 percent. The 21 projections ranged from 2.4 percent to 3.4 percent.