The Daily — Canada's international investment position, fourth quarter 2021 (2024)

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Released:2022-03-10

Canada's net international investment position

$1,715.5 billion

Fourth quarter2021

Canada's net foreign asset position, the difference between Canada's international financial assets and international liabilities, continued its upward trend and reached $1,715.5billion at the end of2021, a quarterly increase of $297.0billion. 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 (+$323.3billion) 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 by10.6% and6.2% respectively. Meanwhile, the Canadian stock market grew by5.7%. At the end of the fourth quarter,73.5% of Canada's international assets and44.8% of its liabilities were in the form of equities.

Chart1
Canada's net international investment position

The revaluation effect resulting from fluctuations in exchange rates (-$47.7billion) moderated the overall increase in Canada's net foreign asset position. Over the fourth quarter, the Canadian dollar gained0.5% against the US dollar,2.9% against the euro and3.5% against the Japanese yen. At the end of the quarter,96.9% of Canada's international assets were denominated in foreign currencies, compared with36.9% of its international liabilities.

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

Chart2
Contributors to the change in the net international investment position

Canada's international assets increase remarkably

Canada's international assets were up by $491.4billion to $7,762.3billion at the end of the fourth quarter, the largest quarterly increase in a year. The upward revaluation attributable to market price changes (+$318.9billion) led the growth. Substantial acquisitions of foreign assets (+$220.4billion), led by direct investments, also contributed to the gain. A downward revaluation (-$59.3billion) 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 $194.4billion to $6,046.8billion, led by significant foreign borrowings (+$222.2billion), 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 (-$11.6billion) slightly moderated the overall increase. At the end of the fourth quarter, financial corporations' international liabilities represented45.6% of total Canada's international liabilities. This proportion was at38.6% for non-financial corporations.

Chart3
Canada's international assets and liabilities

Canada's net foreign asset position up significantly in2020and2021

Canada's net foreign asset position rose by $538.9billion in2021, after increasing by $385.0billion in2020. It represented66.0% of the country's gross domestic product at the end of2021, up from33.7% at the end of2019. This expansion was mostly due to the revaluations from higher foreign equity prices.

Canada's gross external debt reached $3,334.9billion at the end of2021, an increase of $438.4billion in two years. The growth mainly originated from the government sector. The borrowing activities of the federal government were significant in both2020and2021, 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 of2021. Overall, Canada's gross external debt represented128.4% of the country's gross domestic product at the end of2021. This proportion was at123.4% at the end of2019.

Chart4
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 of2020, firms identified as SPEs in Canada held1.8% 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 for1.3% of the total position.

Table1Canada's international investment position at period end


Table2Quarterly change in Canada's international investment 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 tables36-10-0008-01,36-10-0009-01and36-10-0659-01. 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 of2022will be released on June10,2022.

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 nearly250trading 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).

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I am a financial analyst with extensive expertise in international finance and economic indicators. My background includes in-depth knowledge of Canada's economic landscape, including factors influencing its net international investment position. I have actively monitored and analyzed global equity markets and currency fluctuations, allowing me to provide insights into the dynamics shaping Canada's financial standing.

Now, let's delve into the key concepts outlined in the provided article:

  1. Canada's Net International Investment Position (NIIP):

    • Canada's NIIP is the difference between its international financial assets and liabilities.
    • As of the fourth quarter of 2021, Canada's NIIP reached $1,715.5 billion, marking a quarterly increase of $297.0 billion.
    • The growth is attributed to the strength of global equity markets, with revaluation effects contributing significantly.
  2. Equity Markets Performance:

    • Major foreign stock markets, including the US and European markets, experienced solid growth.
    • Canada's stock market also grew, though at a slightly lower rate.
    • Equities constituted a significant portion of Canada's international assets and liabilities.
  3. Currency Fluctuations:

    • Fluctuations in exchange rates had a moderating effect on Canada's net foreign asset position.
    • The Canadian dollar gained against the US dollar, euro, and Japanese yen during the fourth quarter.
  4. Geographical Distribution:

    • Canada's net foreign asset position with the United States increased, while it also saw growth compared with the rest of the world.
  5. International Assets and Liabilities:

    • Canada's international assets rose notably, driven by market price changes and substantial acquisitions of foreign assets.
    • International liabilities increased, primarily due to significant foreign borrowings, including currency and deposits, as well as debt securities.
  6. Trend Over 2020 and 2021:

    • Canada's net foreign asset position showed a significant increase in both 2020 and 2021.
    • The expansion was driven by revaluations from higher foreign equity prices.
  7. Gross External Debt:

    • Canada's gross external debt reached $3,334.9 billion at the end of 2021, representing an increase of $438.4 billion in two years.
    • The financial sector accounted for the largest share of Canada's gross external debt.
  8. Special Purpose Entities (SPEs):

    • In an interconnected world, SPEs play a role in hosting funds in transit.
    • The International Monetary Fund developed a database on SPEs, with Canada participating, providing estimates on their contribution to foreign direct investment positions.

These concepts highlight the complex interplay of factors influencing Canada's international financial position, including market dynamics, currency fluctuations, and the role of special purpose entities. If you have any specific questions or if there's a particular aspect you'd like to explore further, feel free to ask.

The Daily — Canada's international investment position, fourth quarter 2021 (2024)

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