Recent trade data indicates that Canada's current account has experienced heightened volatility. While exports of natural resources and crude bitumen faced global commodity price fluctuations, the nation's import of industrial machinery and high-tech consumer electronics remained robust. The Bank of Canada has highlighted the necessity of structural rebalancing, aiming to transition the economy away from a reliance on commodity price cycles towards high-value services and domestic technology-led manufacturing.
Statistics show that Canadian digital services and clean-tech exports to Asia-Pacific partners rose by 4.2%, but imports of automotive parts softened as domestic manufacturing plants underwent retooling. Economists observe that 'the current account deficit is expected to narrow progressively over the next two years, moving towards a balanced position.'
However, domestic policy experts warn that sustained export performance is heavily contingent on productivity growth. With labor productivity in Canada trailing behind several OECD peers, and global supply-chain disruptions persisting, relying merely on global demand shifts is insufficient. Addressing the productivity gap through targeted capital deepening and labor-market reforms is seen as critical to securing a resilient international trade balance.
Extract A states that 'the current account deficit is expected to narrow progressively over the next two years, moving towards a balanced position.'
Explain two factors, other than a depreciation of the exchange rate, which might help to reduce the size of the deficit on the current account of Canada's balance of payments.
310 exam-style questions on AQA A Level Economics 2.6 The international economy (A-level only), covering 2.6.1 Globalisation, 2.6.2 Trade, 2.6.3 The balance of payments, 2.6.4 Exchange rate systems, and 2.6.5 Economic growth and development. Each one has a worked solution and a mark scheme showing where the marks go.