Brief: Bank of Canada's Annual FSR Says "Vulnerabilities Look Manageable"

Bank of Canada's Financial Stability Report Notes Markets More Vulnerable to Sharp Correction as Equity, Debt Valuations Higher Than Hostorical Norm

Canada's Current Account Remains Under Pressure Despite High Energy Prices, says BMO

Canada's current account deficit widened to $7.2 billion, or $28.7 billion a.r., in Q1, following a shortfall of $1.0 billion, or $4.0 billion a.r., in Q4 2025, noted Bank of Montreal after Thursday's data.This amounts to an estimated 0.9% GDP, in line with recent norms, BMO said, while noting the latest GDP data will be released Friday.A wider goods trade deficit has driven the deterioration amid significant tariff uncertainty, said the bank. However, the late-February outbreak of the Iran war marked a shift in trade flows by driving up prices for key Canadian exports, especially energy, in March, it added.According to BMO, high oil prices will continue to support merchandise exports through Q2.Meantime, an improvement in the services trade surplus was driven by commercial -- largely from an increase in financial services exports -- and travel services, BMO said. The latter was helped by an ongoing decline in Canadian travel to the United States, while spending in other destinations remains sturdy, it added.The primary income account shifted to a deficit on a much smaller investment income surplus. The surplus in direct investment shrank as profits earned by international investors in Canada outpaced those earned by Canadian investors abroad, BMO noted.The secondary income account -- which had been in deficit since 2016 -- improved to a balanced position on a surge in Canadian tax receipts, it also noted.Among other highlights, foreign direct investment (FDI) into Canada slipped to $22.0 billion in Q1, largely directed to energy and mining, BMO said. Meantime, domestic companies' direct investment abroad jumped to $39.2 billion. That resulted in a net FDI outflow of $17.2 billion, the third outflow in the past four quarters, it addedWhile the energy price shock will support Canadian trade flows over the short term, the current account remains under pressure as long as significant trade and tariff uncertainty persists, according to BMO.

Canada's Q1 Current Account Deficit Widens Much More Than Expected on Lower Investment Income, Higher Goods Deficit

Canada's current account deficit on a seasonally adjusted basis widened by $6.2 billion to $7.2 billion in Q1, said the country's statistical agency on Thursday.The Q1 deficit was much higher than the $3.9 billion consensus deficit provided by MUFG.This widening of the deficit reflected a reduction in the investment income surplus, as well as an increase in the trade in goods deficit, noted Statistics Canada in a statement. Q1 2026 marked the 15th consecutive quarter in which the current account balance was in a deficit position.The investment income surplus, the difference between income earned on international financial assets and paid on international liabilities, narrowed by $4.9 billion to $2.5 billion in Q1, added StatsCan. This was largely due to a decrease in the direct investment income surplus. Profits earned by foreign direct investors on their assets in Canada, led by the energy and mining sector, increased more in Q1 than those earned by Canadian direct investors on their assets abroad.The trade in goods deficit widened by $3.3 billion to $7.7 billion in Q1, as imports rose at a faster rate than exports. Imports of goods were up 5.5% to reach a record high of $211.0 billion in Q1. The main contributor to this increase was higher imports of metal and non-metallic mineral products (+38.3%), largely gold, as prices for precious metals increased significantly in the quarter.