Canada: Current account deficit likely narrowed sharply in Q4 – BMO CM

Benjamin Reitzes, Senior Economist at BMO Capital Markets, anticipates that the Canada’s current account deficit likely narrowed sharply in Q4 after the prior quarter’s third largest shortfall on record.

Key Quotes

“We’re calling for a $9.8 bln ($39 bln annualized) gap, with a massive improvement on the goods side driving the better headline. Exports rose firmly for a second straight quarter driven by rising commodity prices, while imports saw their largest decline in 7 years (a reversal from the oil platform-driven rise in Q3).”

“The non-merchandise deficit, which widened sharply in the decade to 2013 due to the appreciating Canadian dollar, likely held steady, but remains in a narrowing trend, due to the softer loonie. Our estimate would peg the current account shortfall at around 1.9% of GDP, a 1.7-ppt improvement from the average in the first three quarters of 2016. Assuming commodity prices hold up, the big current account deficits seen in recent years should stay behind us. While a 2%-of-GDP gap suggests there’s room for the C$ to weaken further, filling that gap with foreign funding isn’t likely to prove difficult.”