Canada's net foreign asset position reached C$1.7T in Q4, an increase of C$297B from Q3; growth due to strength of global equity markets, to which Canada's international assets are highly exposed: Statistics Canada

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OTTAWA , March 10, 2022 (press release) –

Canada's net foreign asset position, the difference between Canada's international financial assets and international liabilities, continued its upward trend and reached $1,715.5 billion at the end of 2021, a quarterly increase of $297.0 billion. The fourth quarter closed another year of robust growth on the strength of global equity markets, to which Canada's international assets are highly exposed.

The revaluation effect resulting from market price changes (+$323.3 billion) led the overall increase in Canada's net foreign asset position in the fourth quarter. Major foreign stock markets had solid performances in the quarter, with the US and European stock markets growing by 10.6% and 6.2% respectively. Meanwhile, the Canadian stock market grew by 5.7%. At the end of the fourth quarter, 73.5% of Canada's international assets and 44.8% of its liabilities were in the form of equities.

Chart 1: Canada's net international investment position

Chart 1: Canada's net international investment position

The revaluation effect resulting from fluctuations in exchange rates (-$47.7 billion) moderated the overall increase in Canada's net foreign asset position. Over the fourth quarter, the Canadian dollar gained 0.5% against the US dollar, 2.9% against the euro and 3.5% against the Japanese yen. At the end of the quarter, 96.9% of Canada's international assets were denominated in foreign currencies, compared with 36.9% of its international liabilities.

On a geographical basis, Canada's net foreign asset position with the United States was up by $205.1 billion to $1,089.3 billion at the end of the fourth quarter, and up by $91.9 billion to $626.2 billion compared with the rest of the world.

Chart 2: Contributors to the change in the net international investment position

Chart 2: Contributors to the change in the net international investment position

Canada's international assets increase remarkably
Canada's international assets were up by $491.4 billion to $7,762.3 billion at the end of the fourth quarter, the largest quarterly increase in a year. The upward revaluation attributable to market price changes (+$318.9 billion) led the growth. Substantial acquisitions of foreign assets (+$220.4 billion), led by direct investments, also contributed to the gain. A downward revaluation (-$59.3 billion) resulting from fluctuations in exchange rates moderated the overall growth. At the end of the fourth quarter, 71.3% of Canada's international assets were held by firms from the financial sector.

On the other side of the ledger, Canada's international liabilities were up $194.4 billion to $6,046.8 billion, led by significant foreign borrowings (+$222.2 billion), mainly in the form of currency and deposits, as well as debt securities. The downward revaluation coming from the fluctuations of the Canadian dollar against foreign currencies (-$11.6 billion) slightly moderated the overall increase. At the end of the fourth quarter, financial corporations' international liabilities represented 45.6% of total Canada's international liabilities. This proportion was at 38.6% for non-financial corporations.

Chart 3: Canada's international assets and liabilities

Chart 3: Canada's international assets and liabilities

Canada's net foreign asset position up significantly in 2020 and 2021
Canada's net foreign asset position rose by $538.9 billion in 2021, after increasing by $385.0 billion in 2020. It represented 66.0% of the country's gross domestic product at the end of 2021, up from 33.7% at the end of 2019. This expansion was mostly due to the revaluations from higher foreign equity prices.

Canada's gross external debt reached $3,334.9 billion at the end of 2021, an increase of $438.4 billion in two years. The growth mainly originated from the government sector. The borrowing activities of the federal government were significant in both 2020 and 2021, and a large part of this debt was acquired by foreign investors. Despite this increase, the financial sector still accounted for the largest share (56.9%) of Canada's gross external debt at the end of 2021. Overall, Canada's gross external debt represented 128.4% of the country's gross domestic product at the end of 2021. This proportion was at 123.4% at the end of 2019.

Chart 4: Canada's gross external debt as a percentage of gross domestic product

Chart 4: Canada's gross external debt as a percentage of gross domestic product

Special Purpose Entities
In an inter-connected world of complex multinational enterprises, Special Purpose Entities (SPEs) are recognized for hosting funds in transit. SPEs are broadly defined as foreign controlled legal entities with little employment or physical presence in the host economy. They are established for the benefits of the host jurisdiction, such as access to capital markets, financial services and/or for risk management, regulatory or tax burden reduction advantages. Since these entities are not necessarily located in the ultimate host economy, they tend to skew the statistics on foreign investment. For this reason, data users have recognized the need to distinguish their cross-border transactions and positions. To this effect, the International Monetary Fund developed a new database on SPEs, and Canada participated in this initiative by providing preliminary estimates on the contribution of these entities to its foreign direct investment positions. At the end of 2020, firms identified as SPEs in Canada held 1.8% of the total stock of direct investment abroad. Meanwhile, SPEs were the recipient of a slightly lower share of foreign direct investment in Canada, accounting for 1.3% of the total position.

Note to readers
Definitions
The international investment position is the value and composition of Canada's assets and liabilities to the rest of the world.

Canada's net international investment position is the difference between Canada's assets and liabilities to the rest of the world. An excess of international liabilities over international assets can be referred to as Canada's net foreign debt. An excess of international assets over international liabilities can be referred to as Canada's net foreign assets.

Foreign direct investment is presented on an asset–liability principle basis (that is, a gross basis) in the international investment position. Foreign direct investment can also be presented on a directional principle basis (that is, a net basis), as shown in supplementary foreign direct investment tables 36-10-0008-01, 36-10-0009-01 and 36-10-0659-01. The difference between the two foreign direct investment conceptual presentations resides in the classification of reverse investment such as (1) Canadian affiliates' claims on foreign parents, and (2) Canadian parents' liabilities to foreign affiliates. Under the asset–liability presentation, (1) is classified as an asset and included in direct investment assets, and (2) is classified as a liability and included in direct investment liabilities.

Next release
International investment position data for the first quarter of 2022 will be released on June 10, 2022.

Products
The Economic accounts statistics and International trade statistics portals are available from the Subjects module of the Statistics Canada website.

The Canada and the World Statistics Hub (Catalogue number13-609-X) is available online. This product illustrates the nature and extent of Canada's economic and financial relationship with the world through interactive graphs and tables. This product provides easy access to information on trade, investment, employment and travel between Canada and a number of countries, including the United States, the United Kingdom, Mexico, China and Japan.

The product Canada's international trade and investment country fact sheet (Catalogue number71-607-X) is available online. This product provides easy and centralized access to Canada's international trade and investment statistics, on a country-by-country basis. It contains annual information for nearly 250 trading partners in summary form, including charts, tables and a short analysis that can also be exported in PDF format.

The Methodological Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-607-X) is available.

The User Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-606-G) is also available.

Contact information
For more information, or to enquire about the concepts, methods or data quality of this release, contact us (toll-free 1-800-263-1136; 514-283-8300; infostats@statcan.gc.ca) or Media Relations (statcan.mediahotline-ligneinfomedias.statcan@statcan.gc.ca).

Industry Intelligence Editor's Note: This press release omits select charts and/or marketing language for editorial clarity. Click here to view the full report.

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