Canada: FDI net inflows turn positive for the first time since 2015 – NBF

Canada’s current account, the broadest measure of trade, registered a deficit of C$19.5 bn in the first quarter of 2018, or about 3.5% of GDP, points out Krishen Rangasamy, Research Analyst at NBF.

Key Quotes

“The C$3 bn deterioration in Q1 was due to wider deficits on the goods trade and investment income accounts which dwarfed improvement in services trade.”

“So how was this massive external deficit financed? For the first time in years, the deficit was financed not by short-term portfolio flows ─ which turned negative as foreigners ditched Canadian securities, particularly federal government bonds ─ but by foreign direct investment (FDI) which are more stable and hence more desirable.”

“Net FDI inflows turned positive for the first time since 2015 thanks to a combination of lower Canadian investment abroad (dragged down by slower M&A activity) and stronger foreign direct investment into Canada. Of course, one quarter does not make a trend and hence one should be careful in declaring victory in the intense global battle to attract foreign investment. But we take heart from the apparent increase in foreign interest in the manufacturing sector, the latter taking in more than half of FDI in Canada in Q1 and more than 40% in the last four quarters.”