BMO Says There's Still Uncertainty Around Canada's Current Account Balance Despite Narrowing Deficit

09:59 AM EST, 02/26/2026 (MT Newswires) -- Bank of Montreal on Thursday said an improving current account deficit over recent quarters reflects a recovery from peak trade uncertainty in Q2, while a return to net foreign direct investment (FDI) inflows is welcome. But BMO sees the size of the current account deficit as manageable, it added the broadest measure of trade will remain under pressure amid elevated uncertainty around the renewal of CUSMA.

BMO noted Canada's current account deficit narrowed to $700 million, $2.8 billion a.r., in Q4, following a shortfall of $5.3 billion, or $21.1 billion a.r., in Q3.

This, BMO noted, is the smallest monthly deficit since 2022, weighing in at an estimated 0.1% of gross domestic product (the latest GDP figures will be released on Friday). Still, it added, the full-year current account deficit clocks in at $30.4 billion, the largest since 2020 due to the significant trade uncertainty.

BMO noted an improved goods trade deficit was the main driver in Q4, as exports of gold, energy and aircraft cushioned the ongoing headwinds from tariffs, which hit autos and forestry in particular. It also noted the services trade surplus was a touch smaller as travel service exports declined amid slower international student immigration. Meantime, the primary income surplus shrank on a wider deficit in portfolio investment income, while an improvement in the secondary income deficit was driven by lower government transfers abroad.

In the financial account, international investors acquired a record level of federal government bonds, which, alongside lower Canadian purchases of international securities, drove a net inflow of $39.8 billion in portfolio investment, the most since Q2 2024.

Foreign direct investment (FDI) into Canada totalled $25.1 billion in Q4, driven largely to trade and transportation. Meanwhile, domestic companies' direct investment abroad slowed to $13.5 billion. That resulted in a net FDI inflow of $11.6 billion, the first inflow since Q1.

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