Canada’s current account surplus with the rest of the world tumbled in the fourth quarter, Statistics Canada said today. It declined $2.1 billion to $6.3 billion on a seasonally adjusted basis.

Statistics Canada said the decline resulted from a second consecutive quarterly drop in the surplus for trade in goods as well as a higher deficit on investment income.

The current account covers the difference between a country’s total exports of goods, services, and transfers, and its total imports.

For the year 2004, the current account surplus reached a record of $33.8 billion, $10.0 billion higher than 2003.

In the capital and financial account (not seasonally adjusted), growth in Canada’s foreign assets outpaced that in international liabilities. StatsCan aid there was a moderate increase to direct investment assets and a record advance in Canadian portfolio holdings of foreign bonds. Canadian liabilities with the rest of the world grew due to foreign buying of portfolio stocks and bonds.

By the end of the fourth quarter, the Canadian dollar jumped nearly 4¢ against the U.S. dollar, closing 2004 above US83¢. However, the Canadian dollar lost ground against other major currencies during the quarter.

The surplus on trade in goods was $15.5 billion in the fourth quarter, down $1.1 billion from the third quarter. Exports decreased by $2.9 billion to $107.6 billion. The decline was spread over all the major categories of goods except energy products where price increases led to a gain.

Imports diminished by $1.8 billion to $92.1 billion.

In the fourth quarter, the deficit on investment income increased for the fourth consecutive quarter. The change came from the lower profits earned by Canadians on their direct investment abroad, following two strong quarters. Profits earned in the quarter decreased by $1.0 billion.

During the quarter, the deficit on services remained unchanged at $2.6 billion. A lower deficit on commercial service transactions was offset by a higher deficit for travel.

Canadian direct investors injected $8.3 billion into foreign economies during the fourth quarter which was down significantly from the previous two quarters. For 2004 however, direct investment abroad was at its highest in four years. The annual total of $57.5 billion went in roughly equal measures to acquisitions and to increases in the working capital of foreign affiliates.

Foreign portfolio investors upped their holdings of Canadian securities by $14.8 billion in the quarter. Similar to the third quarter, foreign investors bought equal amounts of bonds and equities.