Canada’s Current Account Flips to Surplus as Oil Surges

• Despite the escalating trade war between the United States and Canada, we expect Canada's current account to shift to a surplus of 0.1% of GDP in 2026, as rising oil prices boost export receipts, before returning to a slight deficit of 0.6% of GDP in 2027 as prices begin to normalise. The US-Iran war has driven oil prices sharply higher, materially boosting Canada's exports, trade balance and external position through a sustained improvement in the country's terms of trade. With crude oil prices settling above USD100 per barrel in September 2026 and tensions around the Strait of Hormuz remaining unresolved, high energy prices are likely to continue supporting Canada's external position through surging energy exports in the near and medium term.
• Furthermore, a series of trade deals and the development of export infrastructure will help Canada diversify its export profile, offsetting some of the near-term pain caused by the ongoing trade war with the United States. However, rising energy prices could weigh on external demand, creating a medium-term headwind for Canada's exporters despite near-term tailwinds. Looking to 2027, BMI expects Canada’s current account to return to a modest deficit as elevated oil prices normalise and trade disruptions weigh on exports.
• Canada’s current account and goods trade balances returned to surplus in Q2 2026, driven by a 27.4% q-o-q surge in energy exports. Strong goods exports also outpaced import growth, lifting the trade surplus to CAD12.2Bn, the highest since Q3 2008. Automotive exports rose by 19.3% q-o-q, while the current account posted its largest surplus since Q4 2005.
• Furthermore, with Canadian energy exports not subject to US tariffs, these crucial exports have continued to rise. Also, while the United States remains the primary customer for Canada's energy producers, its share of Canadian energy exports fell to 82.7%, down from 90.6% in July 2024, while China imported an increasing share alongside rising exports to the rest of the world, a shift likely to endure as Canada pivots from its southern neighbour.
• The USMCA should continue to support North American trade by keeping most trade tariff-free, providing a boost to exports, investment, and overall trade. However, rising US-Canada trade tensions, renewed tariffs, and the lack of USMCA exemptions for some Canadian exports are increasing risks to the agreement.

(Source: BMI, a Fitch Solutions Company)