Canada’s international balance of payments recorded a $5.0 billion current account deficit in the fourth quarter of 2024, marking the largest shortfall in over a year. The deficit widened by $1.4 billion from the previous quarter, contributing to a tenth consecutive quarter of deficits. The fourth quarter’s performance highlights the evolving trade landscape and the persistent challenges Canada faces in balancing its economic accounts with the rest of the world.
The current account balance ended the fourth quarter of 2024 with a $5.0 billion deficit, the largest since the third quarter of 2023. This represents a continued trend of outflows from the Canadian economy. Several factors contributed to this widening deficit, primarily a shrinking surplus in investment income and an expanding deficit in services trade, particularly in travel services.
The financial account showed a contrasting trend, reflecting foreign investment inflows that helped finance the current account gap. A surge in foreign investments, particularly in Canadian debt securities, led to substantial inflows. Non-resident investors increased their holdings in federal government debt by nearly $45 billion.
Canada’s trade in goods saw a mixed outcome in the final quarter of 2024. While the overall trade balance in goods and services posted a $2.3 billion deficit, this was an improvement from the previous quarter, narrowing by $1.4 billion. The goods trade deficit itself significantly improved, narrowing by $2.8 billion to just $0.4 billion.
Exports of goods increased by 4.6% to $201.2 billion, driven primarily by a 12.9% rise in metal products and a 5.3% increase in energy products. On the import side, total goods imports grew by 3.0% to $201.6 billion, with consumer goods and motor vehicles seeing significant gains.
In contrast, trade in services showed a deterioration. The deficit in services expanded by $1.5 billion to reach $1.8 billion. This was largely due to a decline in the travel services surplus, as expenditures by foreign students in Canada fell, while Canadians increased travel spending abroad. The overall export of services dropped by 1.0% to $53.8 billion, while imports of services grew by 1.7% to $55.6 billion, further contributing to the widening services deficit.
Canada’s investment income surplus shrank to $1.0 billion in the fourth quarter, down from previous highs, as profits earned by foreign direct investors on Canadian assets grew, alongside higher payments to foreign portfolio investors. However, Canadian direct investors saw continued growth in profits from their overseas assets, especially in the financial sector, although the growth was below the levels seen in the same period of 2023.
Meanwhile, the financial account revealed strong foreign interest in Canadian securities. Investors purchased a record $49.8 billion of Canadian securities during the fourth quarter. These acquisitions were mainly in federal government bonds, which saw an influx of $44.9 billion.
Foreign direct investment in Canada remained strong, with $28.0 billion flowing into the country. A notable portion of this was from mergers and acquisitions, particularly in the manufacturing sector. On the outbound investment front, Canadian investors increased their foreign holdings to $39.8 billion, directed mainly towards the United States and the United Kingdom.
For the entire year of 2024, Canada’s current account posted a deficit of $15.6 billion, a narrowing of $2.8 billion compared to 2023. This improvement was largely attributed to a significant increase in the investment income surplus, which grew from $0.7 billion in 2023 to $8.4 billion in 2024. Profits earned by Canadian investors abroad outpaced payments made to foreign investors, cushioning the impact of widening deficits in trade.
The trade in goods deficit for 2024 grew to $6.9 billion, reflecting an increase in total imports, while exports of goods rose by a modest 1.1%. Imports of consumer goods rose significantly, while energy imports saw a slight decline. On the export side, growth in metal products and consumer goods was partially offset by lower exports of motor vehicles.
Services trade also showed a deterioration, with imports rising faster than exports. However, there were positive signs in the commercial services sector, with exports to markets beyond the United States, including the European Union and India, seeing solid growth.
Canada’s persistent current account deficits highlight the challenges the country faces in balancing its international economic activities. While the inflow of foreign investment helps to finance the deficit, there remains a growing dependency on external funding to bridge the gap.
The U.S. continues to be Canada’s primary trading partner, with a strong surplus in goods offset by a services deficit, particularly in travel.