Canada's economy shows potential for long-term growth.

The Canadian dollar recently weakened slightly due to a stronger U.S. dollar. This reflects market shifts following the implementation of higher import tariffs and an expansionary fiscal policy promoted by President Trump during his campaign. These policies have led to expectations of more aggressive rate hikes by the Federal Reserve in response. Higher import tariffs also raise concerns about reduced demand for Canadian exports. Nevertheless, Canada’s labor market has demonstrated resilience.

Canada's Business Outlook Indicator, a long-term index reflecting expected business performance over the next 12 months, rose to 55.8 in October. Data show varying levels of confidence across sectors, with significant gains in construction and manufacturing, while the agriculture, retail, and services sectors slowed slightly. However, companies need to reduce production costs, with a survey showing that over 10% of business operators are considering reducing staff numbers.

Canada’s GDP is expected to grow by 0.3% in September, driven largely by the finance, construction, and retail sectors. However, economic growth in August remained stable, consistent with preliminary estimates and market expectations, with 12 of 20 sectors expanding during that month.

The manufacturing PMI rose to 51.1 in October from 50.4 the previous month, marking the second consecutive month of factory activity expansion in Canada after 17 months of contraction. Production increased for the first time in a year; however, most new orders were domestic. Employment levels rose as manufacturers aimed to ramp up production ahead of next year. Companies continue to express confidence in business prospects, though many remain cautious about the future economic outlook.

Canada reported a trade deficit of CAD 1.26 billion in September, down slightly from CAD 1.5 billion in August, yet higher than the market's expected CAD 0.8 billion deficit. This marked the seventh consecutive month of trade deficit. Imports fell by 0.4% from the previous month to CAD 65.2 billion, with a 13.6% increase in energy product imports and a 12.7% decline in imports of metal and non-metallic minerals. Imports from the U.S., accounting for 60% of Canada’s total imports, rose by 0.8%, while imports from Switzerland and the Netherlands decreased. Meanwhile, Canada’s exports fell slightly by 0.1% to CAD 63.88 billion in September, down from CAD 63.96 billion, with energy product exports decreasing by 2.6% and metal and non-metallic mineral exports falling by 5.4%, while exports of agricultural products, fisheries, and semi-processed foods increased slightly.