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Canadian Current Account Balance Improves

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Statistics Canada has just published the countries first quarter Current Account Balance, this has improved somewhat to –12.39Bn from the -16.01Bn experienced in the last quarter of 2013, market expectations were for a -13.10Bn deficit.

Although experiencing an impressive recovery, as measured by GDP growth Canada has outpaced the US during the first quarter this year, there are concerns mounting about the country’s ability to sustain the current pace of growth. Commodity prices and a weak Canadian Dollar have helped weather the recession but the downturn in China is beginning to weigh quiet heavily on the trade led growth aspect of the Canadian economy.

A growing group of commentators are beginning to point towards a near term correction in the Canadian economy. The housing market is obviously overheating and calls are mounting for the authorities to take steps to cool the market or at least force a soft landing before the risk of a sharp correction takes hold.

Today’s current account deficit is a normal part of the Canadian economic profile, the government consistently runs a counter cyclical economic policy which implies that the deficit is intentional as the economy is being steered back to growth. Canadian public debt, at least at the federal level, is less than 50% of GDP, this gives the authorities plenty of scope to run a deficit when necessary.

The question that is arising is whether it will be Government or the Bank of Canada that takes the necessary steps to cool the asset bubble developing in the property market. Canadian elections are not expected until the end of 2015 which gives Government plenty of scope to both regulate and potentially tighten up on fiscal policy, the likelihood of this is increased as the incumbent Government cannot risk a sharp housing collapse going into the election cycle.

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