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Canada's current account deficit increased by CAD 5.4 billion in the fourth quarter of 2018 to...

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Finance

Canada's current account deficit increased by CAD 5.4 billion inthe fourth quarter of 2018 to CAD 15.5 billion from a downwardlyrevised 10.1 billion in the previous period and compared withmarket consensus of a CAD 13.5 billion shortfall. A higher deficitin goods and services was only moderated by a lower investmentincome gap.Canada recorded a capital and financial account deficitof 27 CAD Million in the fourth quarter of 2018.

Discuss the implications for Canada from the outflows ofcapital

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4.1 Ratings (774 Votes)
Unsustainable If a current account deficit is financed through borrowing it is said to be more unsustainable This is because borrowing is unsustainable in the long term and countries will be burdened with highinterest payments Eg Russia was unable to pay its foreign debt back in 1998 Other developing countries such as Brazil African countries have experienced similar repayment problems Countries with large interest payments have little left over to spend on investment Risk of capital flight A very high balance of payments deficit may at some point cause a loss of confidence by foreign investors Therefore there is always a risk that investors will remove their investments causing a big fall in the    See Answer
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Transcribed Image Text

Canada's current account deficit increased by CAD 5.4 billion inthe fourth quarter of 2018 to CAD 15.5 billion from a downwardlyrevised 10.1 billion in the previous period and compared withmarket consensus of a CAD 13.5 billion shortfall. A higher deficitin goods and services was only moderated by a lower investmentincome gap.Canada recorded a capital and financial account deficitof 27 CAD Million in the fourth quarter of 2018.Discuss the implications for Canada from the outflows ofcapital

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