Statistics Canada's 'flash estimate' of COVID-19 valuation effects indicates largest percentage decline since Q3 2008
Aside from raising the spectre of recession, the coronavirus crisis has had a material impact on Canada’s investments, according to a preliminary estimate by Statistics Canada.
Following a methodology that focused primarily on valuation effects on assets and liabilities as measured at the end of 2019, the federal agency has produced a “flash estimate” of how COVID-19 has impacted the country’s net international investment position for the first quarter of 2020.
“[W]hen international assets and liabilities are large, as is currently the case in Canada, valuation effects can have a strong influence on the trend of the international investment position,” Statistics Canada said.
Based on preliminary calculations, Canada’s estimated international assets declined $360 billion in the first quarter. It would represent the largest decrease in value since the quarterly series was started in 1990, and the largest percentage decrease since the third quarter of 2008, during the global financial crisis
“At the same time, the decline of the Canadian dollar, against the backdrop of a weaker economy and the collapse of oil prices in March, helped support Canada's net foreign asset position,” Statistics Canada said.
The collapse of global stock markets resulted in an estimated valuation loss of $775 billion (-13.4%), which was offset by a $400-billion-dollar valuation gain (6.9%) enabled by a lower Canadian dollar.
The country’s international liabilities dropped by $270 billion (-5.7%), which would be the highes since the third quarter of 2008. That move reflected a loss of $460 billion (-9.6%) rooted in the recent Canadian stock-price meltdown, which was moderated by a $155-billion increase due to the weaker Canadian dollar.
The coronavirus-sparked fall in world stock markets coupled with the supply conflict in oil had a more dramatic impact on Canada’s international assets than its liabilities, according to Statistics Canada, as a higher proportion of assets are held in the form of equities than liabilities.
The first quarter saw a reported decline of 21.6% in the Canadian stock market, 20% in U.S. stocks, and 25.6% in European equities as measured by the Standard and Poor's 500 and the EuroStoxx 50. Over the same period, the loonie depreciated 8.5% against the U.S. dollar, 6.4% against the Euro, 2.4% relative to the British pound, and 9% against the yen.
