Canada fourth quarter current account gap widens, but less than forecast

Thu Feb 27, 2014 10:43am EST
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By Randall Palmer and Leah Schnurr

OTTAWA/TORONTO (Reuters) - Lower prices for crude oil helped to widen Canada's current account deficit to its fourth-largest level ever in the final months of last year, underlining economists' expectations that net exports were a drag on economic growth in the fourth quarter.

The gap widened to C$16.01 billion ($14.42 billion) in the fourth quarter of 2013, Statistics Canada said on Thursday. Still, the deficit was smaller than the C$17.00 billion analysts had forecast and previous deficits were revised lower.

Statscan said the increase in the deficit was mostly because of the trade in goods, with exports down C$876 million and imports up C$509 million. The biggest factor was a C$2.20 billion decline in crude oil exports, mainly because of lower prices.

The Canadian dollar came off its session lows immediately after the report, but the data was offset by investor caution over political tensions in Ukraine, which weighed on the currency. <CAD/>

Economists said the report was in line with their expectations for how overall growth likely shaped up in the fourth quarter. Figures for gross domestic product will be released on Friday.

"While the deterioration in the current account deficit was not as bad as initially feared, it reaffirms our expectation that net exports will weigh on fourth-quarter gross domestic product growth," Mazen Issa, senior Canada macro strategist at TD Securities in Toronto, said in a note to clients.

The economy likely grew at a 2.4 percent annualized pace in the quarter as weakness in net exports was balanced with decent consumer spending, said Issa.

"Nonetheless, we see some scope for net exports to evolve in a more constructive manner in the year ahead. We have argued that the Canadian dollar will help provide a competitive boost to exports, which will inevitably help the current account deficit improve from the historical lows that it has hovered around for nearly five years."   Continued...