Canadian Trade Balance Analysis

Canadian Trade Balance Analysis

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     The Canadian economy and the United States economy tend to move together because of the amount of transactions that take place within the two nations due to their geographical proximity. With the United States recently experiencing a downturn in the economy, analysts estimate that the Canadian economy will not be far behind. However, in the past 10 years the Canadian economy and especially the trade balance have been very healthy.
Current Account
     Since 1992, Canada has increased their amount of exports of goods year-in and year-out until slight downfalls in 2001 and 2002. However, between 1992 and 2000 they raised exports from $135 billion to $289 billion, an increase of 114%. Imports of goods also rose consistently over that nine year period from $128 billion to $244 billion. The key fact there though is that imports rose only 90% compared to a rise in exports of 114%. This has allowed Canada to maintain a very healthy trade balance, which has also risen consistently except for a few decreases in 1997, 1998, and 2002. They have not run a trade balance deficit on goods once since 1992.
     Canada’s trade balance for services is similar to their trade balance for goods from a growth perspective, but with fewer breakdowns. Both exports and imports of services took very small hits in 2001. Overall, between 1992 and 2003 exports and imports of services rose 105% and 65% respectively. However with services the Canadian economy continually ran a deficit over this 12 year period.
     Canada’s overall balance of goods and services also rose every year except for 1997, 1998, and 2002. They initially were running an overall deficit in 1992 and 1993 from a larger deficit in services than surplus in goods. The most common trend that is evident is that every trade category dropped in 2001 and/or 2002. There were no real substantial drops and the declines were quickly met with increases in the following years. It is likely that Canada’s economy felt at least some of the effects of the terrorist attacks on September 11, 2001 because they are such a large trading partner of the United States.
     The statistics indicate that Canada has primarily been an investor abroad, with substantial amounts of cash flows leaving the country. Again, both of these accounts grew almost every year. Between 1992 and 1997, funds received dropped only once in 1993. Likewise, funds invested abroad dropped only once within this time interval in 1996.

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Between 1998 and 2003, funds received rose rather steadily with the exception of a sharp decrease in 2001 of approximately $8 billion. The income account ran a pretty large deficit, pushing the overall balance account of goods, services, and income into a deficit for six years between 1992 and 2003. The balance account for just goods and services ran a deficit only twice in this time frame.
Financial Account
     Direct investment abroad also rose steadily from 1992 through 1998 from $3.5 billion to $34 billion. In 1999 it dropped to $17 billion and then jumped back up to $44 billion in 2000 before steadily declining through 2003. Direct investment received steadily climbed from $5 billion in 1992 to $25 billion in 1999 before soaring to $66 billion in 2000. This account then began a rapid decline all the way down to $6 billion in 2003. Both of these accounts seemed to peak in 2000 and then rapidly decline, possibly an effect of the 9/11 attacks.
     The portfolio investment assets and liabilities accounts seem to be more sporadic than the others that we have looked at. For the portfolio investment assets, there is not a span of more than three years that the account steadily rose or fell. Equity securities within this account again would peak in 2000 at $40 billion and bottom out in 2003 at $3 billion. Debt securities on the other hand hit its maximum value in 2003 at only $6 billion. The portfolio investment liabilities account was much like that of the assets with no real patterns to be seen and the equity securities account peaking in 2000 at a value of $24 billion.
     The financial account for the Canadian economy has proven to be far less stable than its current account. The patterns in the data suggest that it is becoming less a part of the global financial system, with most of the accounts within the financial account peaking in 2000 and declining from there on. These patterns were likely caused by the downfall of the stock market. Bankintroductions.com reports that the TSE-300 Index, Canada’s largest stock market, fell to the 7,000 point level in June 2003 after reaching its peak of 11,400 in September 2000. It has also been noted that this drop in the market was primarily caused by the 97% collapse of hi-tech giant Nortel Networks.
Exchange Rates
     The average Canadian dollar per US dollar steadily depreciated from a level of 1.2087C$/US$ in 1992 to 1.3846C$/US$ in 1997. The Canadian dollar would continue to depreciate against the dollar between 1998 and 2002, going from 1.4835C$/US$ to 1.5693C$/US$. Then in 2003 the Canadian dollar appreciated against the US dollar to 1.4011C$/US$. There doesn’t seem to be any major correlation between the exchange rate of the Canadian dollar and there trade balances because they were all relatively stable with the exception of the financial account.
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