Key Takeaways:
Canada's merchandise-trade surplus widened to its largest in four years as exports hit a record high, signaling the economy has emerged from a two-quarter contraction.
Canada's trade surplus ballooned to C$4.24 billion in May, the widest in four years, as exports climbed 0.9% to a record high on surging metals and mineral shipments tied to the Iran conflict.
"Canadian trade surpluses can come and go quickly with swings in oil prices, and this is probably the high watermark for now," said Robert Kavcic, senior economist at BMO Capital Markets. "Still, net exports look to add firmly to growth in the second quarter, another data point that suggests the Canadian economy has snapped out of its two-quarter funk."
The surplus far exceeded the C$2.68 billion economists had expected and followed April's upwardly revised C$3.41 billion, Statistics Canada said Tuesday. Imports edged down 0.2% from the prior month. Canada's trade surplus with the U.S. expanded to C$11.63 billion, the largest since the record high in January 2025, while the deficit with all other countries widened modestly.
The data adds to evidence that Canada's economy rebounded in the second quarter after contracting at an annualized 0.1% in the first three months of the year and 1% in the final quarter of 2025. A flash estimate from Statistics Canada suggests gross domestic product ticked up 0.1% in May, putting the economy on track for annualized growth above 2% in the second quarter.
Exports rose broadly in May, led by metal ores and nonmetallic minerals. Shipments of sulfur from Canada jumped as global supplies were constricted by the war and the squeeze on goods moving through the Strait of Hormuz. Exports of gold also increased, and shipments of unwrought aluminum and aluminum alloys rose to their highest value in four years on deliveries to the Netherlands, Italy and Greece. Excluding energy products, overall exports were up 2% from April.
Energy exports slipped 2% for the month after a jump in April, though they were up more than 70% year over year as oil prices surged with the Middle East conflict. West Texas Intermediate crude traded 2.8% higher at $70.47 a barrel Tuesday after reports of attacks on vessels near the Strait of Hormuz revived fears of shipping disruptions through the critical energy transit route.
On the import side, inbound goods pulled back from the record-high level in April, largely due to a decline in metals and minerals and a drop in gold purchases. Imports of consumer goods rose, driven by batteries and battery chargers from China, while pharmaceutical and medicinal products increased from Germany, the U.S. and Spain.
The Canadian dollar edged 0.1% higher to 1.4190 per U.S. dollar, or 70.47 U.S. cents, as oil prices rose. Canadian government bond yields moved higher across the curve, with the 10-year up 4.8 basis points at 3.467%.
With oil prices having fallen in recent weeks, the value of exports and the trade surplus may have seen a near-term peak in May, economists say. Uncertainty has also risen after the U.S. last week declined to extend the U.S.-Mexico-Canada trade pact in its current form, though the agreement remains in effect. Canada and Turkey have formally launched negotiations for a free-trade agreement, Prime Minister Mark Carney's office said.
Canadian employment data due Friday will offer additional clues on the state of the domestic economy. Investors expect a jobs gain of 10,000 and the unemployment rate to hold steady at 6.6%.
"Even though CUSMA wasn't extended last week, the fact that the trade deal remains in place and most exports maintain an exemption from U.S. tariffs should help maintain higher export volumes relative to a year ago, alongside ongoing Canadian efforts to grow trade with other countries, which today's data suggest are paying dividends in some sectors," said Andrew Grantham, senior economist at CIBC Capital Markets.
This article is for informational purposes only and does not constitute investment advice.
