Canada’s current account deficit widened by $0.5 billion to a smaller-than-expected $18.9 billion in the third quarter of this year from $18.4 billion in Q2. The rise in the current account deficit overall was more-than-accounted for by a $1.2-billion increase in the goods deficit. This deterioration was flagged by the earlier-released Q3 merchandise trade data and reflected, as expected, a sizable $3.7-billion drop in exports that outpaced a smaller, though still sizable, $2.5-billion drop in imports. The services and secondary income (transfers) deficits also widened, with both increasing by $0.3 billion; however, partial offset was provided by a $1.2-billion improvement in the investment balance.
"While the deterioration in the nominal goods balance in Q3," according to experts at RBC Economics, "was relatively modest, and smaller than expected, this still left the overall deficit at its second largest level on record, surpassed only by a $19.4-billion deficit in the third quarter of 2010.
"Moreover," RBC continues, "the deterioration in Q3 was led by a decline in the nominal goods balance that, with prices falling faster for imports than exports, understated the deterioration in the volume balance.
"As a result," experts conclude, "we continue to expect net trade, in real terms, will subtract a sizable 1.7 percentage points from Q3 GDP growth, to be reported tomorrow. This expected drag from trade is a significant factor in our expectation that overall GDP growth will slow to a 0.7% pace of growth from the 1.9% increase in Q2."
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