Canada's Current Account Deficit Widens to A Record $21.2 Billion in Q2, Says BMO

10:02 AM EDT, 08/28/2025 (MT Newswires) -- Canada's current account deficit widened to a record $21.2 billion, or $84.6 billion a.r., in Q2, following a revised $1.3 billion shortfall, or $5.3 billion a.r., in Q1, said Bank of Montreal (BMO) after Thursday's data.

That is estimated at 2.7% of gross domestic product, with the latter figure to be published on Friday, noted the bank.

"Unsurprisingly," a record deficit of $19.6 billion in goods trade was the main driver, amid rising United States tariff uncertainty, stated BMO. While uncertainty seems to have peaked on a global scale, the absence of a Canada-U.S. trade deal suggests goods exports will remain under pressure in Q3.

A small surplus in the services trade account ($100 million, following a $400 million deficit) added a tiny offset. That improvement came thanks to a recovery in commercial services, while the travel surplus was little changed as flows in both directions across the U.S. border declined, pointed out the bank.

The primary income account posted a $400 million surplus following a $200 million shortfall in Q1. The secondary income deficit worsened to $2.0 billion from $300 million in Q1.

Trade tensions left their mark on the financial accounts as well, as there was a net outflow of $16.8 billion from Canadian securities, the second largest on record after 2007. Canadian investors bought a net $26.8 billion of international securities, down from an even larger flow in Q1.

Foreign direct investment (FDI) into Canada slipped to $18.5 billion in Q2, driven by mergers and acquisitions and foreign parent companies' reinvested earnings into their Canadian affiliates. Meantime, domestic companies' direct investment abroad recovered to $26.8 billion after plunging in Q1. That left net FDI flows negative for the second time in the past five quarters, evoking memories of the consistent outflows seen in the prior decade, addeed BMO.

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 the bank looks for a contraction in real GDP on Friday.

The question is where the trade figures go from here, amid ongoing trade talks with the U.S. and ahead of a likely renegotiation of the USMCA next year, according to BMO.

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