The current account deficit totaled a seasonally adjusted C$7.486 billion in the fourth quarter, bigger than the consensus forecast for a $5.1 billion shortfall. A slump in the goods trade account combined with a widening investment income deficit resulted in the largest current account deficit since 1993.

The weakening in Canada's traded goods surplus was due to declines in both the volume of exports as well as lower prices for commodities like energy. Imports were lower as well, led by declining purchases of energy products and declining imports of auto products, which fell to a 10-year low. In the investment account, lower receipts due to falling yields outside of Canada and higher payments to foreign investors who owned U.S.-dollar-denominated debt (the Canadian dollar lost ground against the U.S. dollar in the quarter), resulted in the deficit rising in the fourth quarter

The current account deficit reflects the impact that the slide in commodity prices is having on Canada's economy, with the trade sector's surplus narrowing substantially in the quarter. In the investment account, the flows reflected the impact of the uncertainty in the global financial market as well as the weakening Canadian dollar and low interest rates.

In all, this report highlights the erosion in the trade sector and weakening in economic activity in the quarter. Our monitoring of the economy points to a 4% annualized contraction in real GDP in the fourth quarter, sharper than the Bank of Canada's forecast, and data for January are flagging that another hefty decline is likely. While the Bank anticipated that the economy was sliding into recession in late 2008, recent data reports have erred on the weak side and, combined with persistent uncertainty in financial markets, will likely to see policymakers lower the overnight rate one more time when they meet next week. RBC forecasts the Bank will cut in the overnight rate to 0.50% next Tuesday.

RBC Financial Group

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.