Tariff tensions are weighing against some sectors of the economy, StatCan report shows
Canada’s current account deficit ballooned to a record $21.2 billion in the second quarter of 2025, a sharp deterioration from the revised $1.3 billion shortfall in the first quarter.
The deficit, equivalent to an annualized $84.6 billion, represents an estimated 2.7% of GDP, a new Statistics Canada report showed.
“Unsurprisingly, a record deficit of $19.6 billion in goods trade was the main driver, amid rising tariff uncertainty,” said Shelly Kaushik, senior economist and vice-president at BMO Economics.
The widening trade gap reflects growing pressure on Canadian exporters as global trade tensions persist. While Kaushik noted that “uncertainty seems to have peaked on a global scale,” she cautioned that “the absence of a Canada-US trade deal suggests goods exports will remain under pressure in Q3.”
Services trade sees small rebound
A modest bright spot emerged in the services trade account, which posted a $0.1 billion surplus after a $0.4 billion deficit in the previous quarter. The improvement was led by a recovery in commercial services, though the travel surplus remained largely unchanged as cross-border flows with the United States declined in both directions.
Capital flows and financial accounts
The financial accounts also reflected trade tensions, with Canadian securities posting a net outflow of $16.8 billion—the second-largest on record after 2007. Canadian investors bought a net $26.8 billion in foreign securities, though this was down from even larger flows in the first quarter.
Foreign direct investment into Canada slipped to $18.5 billion in Q2, driven mainly by mergers and acquisitions and reinvested earnings by foreign parent companies in their Canadian affiliates. Meanwhile, Canadian companies’ direct investment abroad recovered to $26.8 billion after plunging in Q1, resulting in negative net FDI flows for the second time in five quarters.
Labour market contrast
Employment data released separately showed payrolls fell by 33,000 in June, in contrast with the household survey, which indicated more than 83,000 new jobs for the same period. The job vacancy rate edged up to 2.8% but remained below year-ago levels, with 3.2 unemployed persons for every opening.
“As the broadest measure of trade, the deterioration in the current account driven by plunging goods exports was expected in Q2 and is the primary reason why we look for a contraction in real GDP tomorrow,” Kaushik said.
Attention now turns to upcoming trade negotiations with the United States and the likely renegotiation of the USMCA agreement next year.
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