CIBC on Economic Forecast, Markets' Reaction to Canada's Merchandise Trade Deficit in July

10:51 AM EDT, 09/04/2025 (MT Newswires) -- Canadian exports and the goods trade deficit began to stabilize in July, although at weaker levels than prevailed before United States tariffs and related uncertainty took hold, said CIBC.

The deficit in goods trade was $4.9 billion in July, which was around $1 billion narrower than in the prior month and also slimmer than the consensus forecast of $5.3 billion, noted the bank.

While a solid rise in inflation-adjusted exports suggests that net trade will be a positive to gross domestic product in Q3, trade uncertainty will continue to indirectly impact other areas of GDP, likely keeping the overall pace of growth fairly tepid during the second half of the year, stated CIBC.

Overall, it looks like net trade will be a positive for GDP in Q3, but that doesn't mean that the negatives from this year's tariff shock are behind Canada, pointed out the bank. Exports in Q2 were likely below the underlying trend, due to earlier tariff front-running, and so the recent improvement is simply returning Canada to a new, lower, trend level.

While CUSMA exemptions are helping stabilize exports in many areas, sectors exposed to specific tariffs -- notably steel and aluminum -- continue to suffer.

In addition, the negative impact of trade uncertainty on business investment, hiring and, by extension, consumer spending, will persist for longer and likely keep overall GDP growth fairly tepid during the second half of the year.

There was limited market reaction to Thursday's trade data, according to CIBC.

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