Canadian Analysis

The Bottom Line

Details behind the surprisingly large swing in the Canadian trade balance back to surplus in September were broadly consistent with earlier reports flagging a stabilization in the broader economic backdrop following significant trade disruptions that began in the spring. 

U.S. tariffs continue to weigh on activity in targeted sectors — but most products continued to cross the border duty free in September (86%.) Exports to other parts of the world ramped up (+11% from August and +18.6% from a year ago).  And there were some signs of stabilization among some specifically tariff-targeted sectors (aluminum exports rose sharply for a second straight month and copper exports edged up after falling sharply in August) 

The increase in goods exports in Q3 as a whole came in stronger than the placeholder Statistics Canada used to calculate the contribution to net trade in last week’s Q3 GDP report, suggesting early upside risk to the estimated 3.1 percentage point add to GDP growth from net trade — September data on exports to the U.S. was unavailable for that earlier report because of delays tied to the U.S. shutdown. 

That Q3 GDP increase (2.6% annualized rate) was entirely explained by an increase in net trade with domestic demand growth flat. But our own tracking of consumer demand has remained relatively resilient to-date in Q4 and labour markets have shown further signs of improvement, with the unemployment rate ticking sharply lower in November. 

Uncertainty about Canada’s future trade relationship with the U.S. remains, slower population growth will weigh on aggregate output, and weak productivity growth persists as a structural challenge. But absent another external shock, we remain cautiously optimistic about the Canadian economic outlook in the year ahead and don’t expect the Bank of Canada will need to lower interest rates further. 

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The September details

• Canadian monthly trade data remained volatile, with the goods trade balance shifting from a $6.4 billion deficit (revised from -$6.3 billion) in August to a $153 million surplus in September.

• Exports rose 6.3% month-over-month, while imports fell 4.1%. In volume terms (chained), exports increased 4.9%, more than reversing August’s decline, while imports decreased 3.9%.

• On a quarterly basis, goods export volumes rose 3.3% at an annualized rate in Q3/25 – stronger than the 0.7% increase reported in the Q3 GDP report last week. That export gain was compiled without much of the September export data because data on U.S. imports from Canada was not yet available due to the government shutdown.

• Import goods volumes fell by 10.1% (annualized rate), leaving net trade tracking a slightly larger add to Q3 GDP growth than the 3.1 percentage point add initially reported.

• By trading partner, exports to the U.S. rebounded 4.6% in September after August’s 3.4% decline, though they remain 5.6% below year-ago levels. Year-to-date, Canadian exports to the U.S. have averaged 3.9% below year-ago levels through September.

• Shipments to other countries jumped 11% monthly and rose 18.6% year-over-year.

• Metal and non-metallic mineral products drove much of the export gain in September – that in part reflected a jump in exports of the volatile unwrought gold component, but exports of heavily (U.S.) tariffed aluminum and copper products also rose sharply.

• Unwrought copper, nickel, gold and silver all posted growth exceeding 30% from August, recovering from prior monthly declines. Unwrought aluminum and aluminum alloy shipments maintained their upward trajectory, climbing 18.6%.

• Crude oil provided the second-largest contribution to monthly growth, rising 5.8%. This marked the fifth consecutive monthly increase, reflecting heightened oil and gas extraction activity noted in September’s GDP report.

• Contrasting with strong export performance, imports dropped 4.1% from August and were down 1.9% from a year ago.

• Much of the import drop came from a 72.5% plummet in unwrought gold imports following a surge in August, but imports of industrial equipment (a key indicator of Canadian business investment) also fell by 5.2% from August (and 4.5% from a year ago. 

• Separately reported data from the U.S. Census Bureau showed 86% of Canadian exports to teh U.S. continuing to cross the border duty free in September (unchanged from August.) The U.S. average effective tariff rate on imports from Canada was little changed at 3.9%, and still well below the average rate on all U.S. imports (10.7% in September.) Tariffed products remain concentrated in the auto sector, steel and aluminum products.

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About the Author

Nathan Janzen is an Assistant Chief Economist, leading the macroeconomic analysis group. His focus is on analysis and forecasting macroeconomic developments in Canada and the United States.

Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.

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