Canada's net foreign debt declines by more than half in Q2 from Q1 to C$103.7B, lowest since 2007, driven by lower Canadian stock markets, revaluation effect of weaker Canadian dollar

Cindy Allen

OTTAWA , September 12, 2013 (press release) – Canada's net foreign debt declined by more than half in the second quarter to $103.7 billion, the lowest level since 2007. This mainly reflected the impact of lower Canadian stock markets on the value of Canada's international liabilities as well as the revaluation effect of a weaker Canadian dollar on international assets and liabilities.

International assets increase on a weaker Canadian dollar

Canada's international assets increased $59.3 billion to $2,574.2 billion by the end of the second quarter. The depreciation of the Canadian dollar against most major currencies resulted in a $65.9 billion upward revaluation of foreign currency denominated international assets. The Canadian dollar lost 3.4% against the US dollar, 4.9% against the Euro, and 3.5% against the British pound over the quarter. Overall, losses in foreign financial markets moderated the increase in international assets.

International liabilities down on lower Canadian stock markets

Canada's international liabilities decreased $63.1 billion in the second quarter, mainly because of declines on Canadian stock markets. However, upward revaluations of foreign currency denominated liabilities of $20.0 billion, as well as investment inflows from abroad, moderated the overall decrease in international liabilities.

Canada's net liability portfolio position declines

Canada's net liability position on securities declined for a third straight quarter to $305.8 billion by the end of June. This was largely because of a $27.9 billion increase in Canadian holdings of foreign securities, led by the upward revaluation of foreign currency denominated instruments. Capital gains on foreign stock markets, mainly in the United States, were offset by losses in foreign bond markets as yields were up during the quarter.

The decrease in non-resident holdings of Canadian securities further reduced the net liability portfolio position in the quarter. Foreign holdings were down $16.2 billion to $1,268.3 billion, led by lower Canadian stock and bond prices. The reduction was partly offset by an upward revaluation of foreign currency denominated liabilities.

Canada's net asset position on direct investment increases

The net asset position on direct investment reached $84.1 billion in the second quarter, a level not seen since 2007 before the onset of global credit concerns.

The value of Canadian direct investment abroad increased $20.8 billion to $1,055.2 billion by the end of the second quarter. The revaluation effect of a weaker Canadian dollar was the largest contributor to the gain, but this was slightly tempered by losses in non-US foreign equity markets.

The value of foreign direct investment in Canada was down by $48.3 billion to $971.1 billion. This decline, related to lower Canadian equity prices during the quarter, was moderated by direct investment inflows of $11.8 billion.

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