Canada's Current Account Deficit Improves in Q3 But Key Will Be U.S. Trade Negotiations, Says BMO

10:20 AM EST, 11/27/2025 (MT Newswires) -- Canada's current account deficit improved to $9.7 billion, or $38.7 billion a.r., in Q3, following the record shortfall of $21.6 billion ($86.2 billion a.r.) in Q2, said Bank of Montreal (BMO).

That's estimated to account for 1.2% of gross domestic product -- with the latter figure to be released on Friday -- and roughly in line with the average over the past year, noted the bank.

Thursday's improvement came from a narrower deficit for goods trade as United States tariff uncertainty dissipated from its peak in Q2, stated BMO. That nudged exports higher, driven by energy and consumer goods.

Still, the estimated $11.1 billion shortfall is the second largest in history, going back to 1981. The services trade account improved to a $500 million surplus from a $700 million deficit in Q2, largely on a bigger surplus in commercial services. The travel services surplus was little changed as Canadians spent less money abroad (in both U.S. and non-U.S. destinations), but international travellers (including students) spent less money in Canada.

In the absence of U.S. trade data, the September estimates for goods and services will be subject to larger-than-normal revisions as the data are released (expected to start in the coming weeks), pointed out the bank.

Meantime, the primary income surplus (net investment income and wages earned abroad) jumped to $3.2 billion, thanks to a record-high $7.0 billion surplus in investment income. The secondary income (net transfer payments abroad) deficit narrowed from $2.6 billion to $2.3 billion in Q3.

Following a net outflow in the first half of the year, foreign investment in Canadian securities jumped to $80.3 billion, while Canadian investment in international securities jumped to an all-time high of $57.6 billion. That resulted in a net inflow of $22.7 billion in portfolio investment.

Foreign direct investment (FDI) into Canada slipped to $18.1 billion in Q3, mostly directed to trade and transportation, finance and insurance, and manufacturing. Domestic companies' direct investment abroad declined to $25.1 billion. That kept Canada in a net FDI outflow position, though it improved slightly from $8.2 billion to $6.9 billion.

The current account improved from a tough Q2, but the broadest measure of trade will continue to be under pressure while trade uncertainty stays elevated -- especially given that Canada-U.S. negotiations remain on hold, added BMO.

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