Canada gets third-largest trade surplus on record

The third-quarter surplus of more than $9b was nearly double the previous quarter

OTTAWA — Canada earned a surplus of more than $9 billion in its dealings with the rest of the world in the third quarter of the year, nearly double the previous quarter and the third largest surplus on record.

Meanwhile, foreign direct investment soared to a 31⁄ year high, as foreigners injected more than $13 billion into the Canadian economy, almost triple the amount that they invested in the previous quarter.

The latest in a stream of good economic news from Statistics Canada came Tuesday as Prime Minister Paul Martin was launching an election campaign in which the health of the economy is expected be the scandal- tainted Liberals’ strongest suit.

However, the greater- thanexpected $9.3-billion surplus in the trade of goods and services and flows of investment was padded by the surge in energy prices in the wake of hurricanes Katrina and Rita, and will not be repeated, analysts warned.

“ Looking ahead, the current account surplus is likely to narrow in the fourth quarter of 2005, as the merchandise trade balance falls back in line with lower energy prices,” J.P. Morgan economist Ted Carmichael said, predicting that the surplus for the year will slip to $ 23.7 billion from $28.8 last year.

Further, half of the $13.7 billion surge in direct foreign investment was in the acquisition of existing Canadian companies, not in the establishment of new businesses, Statistics Canada noted.

Still, one- half was new investment, and the overall current account surplus is expected to remain at relatively healthy levels.

And Canadians have also been acquiring foreign firms, Statistics Canada noted. “ At $ 11.8 billion in the third quarter, Canadian direct investment abroad was up by over half from the previous quarter,” it said.

The good economic reports helped offset money market concerns about political uncertainty generated by the fall of the minority government and the launch of the election campaign, and the impact of what was also relatively good U. S. economic news. The Canadian dollar closed at 85.57 cents US, down only marginally from 85.62 cents US Monday.

Meanwhile, another Statistics Canada report suggested Canadian workers, as well as enjoying the lowest jobless rate in three decades, are also seeing wage gains that are outpacing inflation.

Average weekly earnings rose 0.1 per cent in September, leaving them 3.8 per cent higher than a year earlier, which was not only above the increase in the cost of living, but the strongest 12- month wage growth since at least 1992, Carmichael said.

And there was further good economic news.

The Conference Board of Canada forecast that Canadian retail profits are poised to reach a new high of $9.5 billion this year, surpassing last year’s record $9.1 billion.

Profits have been strong despite relatively weak price increases, in part because the strong dollar has cut the costs of imports, especially clothing and general merchandise, the economic think-tank noted.

“ However, the profit boom is starting to ease,” it cautioned, predicting that competitive pressure will pull down both profits levels and margins in the coming months, although that’s good news for Canadian consumers.

Meanwhile, the Canadian Real Estate Association, in another report, reiterated its forecast that housing market sales are on track to post a new record this year.

Sales of existing homes nationally slipped 2.5 per cent in October to 41,105 units, but that was still the sixth highest on record, and the value of sales reached $10.6 billion, the third highest level on record.

The average price of a home was $256,046, an all-time high and 10.7 per cent higher than a year earlier.

While association chief economist Gregory Klump said rising interest rates are slowing the pace of sales from the peak reached earlier in the year and will continue to do so in the new year, it is forecasting sales next year will remain at relatively high levels.

While most analysts agree that the Bank of Canada will continue raising interest rates, including another quarter- point hike next month during the election campaign, another report revealed that there’s no upward pressure on prices at the industrial and raw materials levels. CanWest News Service