Emerging Markets to Become
More Important

United States

The U.S. will remain by far Canada’s largest trading partner for the foreseeable future. However, the outlook for goods exports is mixed. On the positive side, with the Canadian dollar expected to fall below US$0.75, Canadian exporters will have a significant boost in competitiveness. We anticipate the U.S. economy will have a strong rebound following an expected economic slowdown in 2023. This robust recovery will provide a favourable environment for Canadian exporters over the near term, especially in transportation manufacturing industries.

However, we expect a shift in the makeup of trade beyond 2025. Canada aims to diversify its trading partners, particularly by tapping into the emerging Asian markets. Consequently, the U.S. will no longer be the primary catalyst for export growth. Also, energy export growth is expected to slow down significantly beyond 2025 due to the absence of new pipeline construction plans over the forecast horizon and capacity constraints.

Overall exports to the U.S. will average a healthy annual growth rate of 3.1 per cent between 2023 and 2027.

India

While India accounts for a small share of Canadian exports, the country’s economy is growing rapidly, given its strong demographics. Trade relations between Canada and India have grown substantially over the past decade, particularly in the area of travel services. Canadian exporters may seek to re-orient their export strategies from China to India.

Looking to 2027, we anticipate that the expansion of exports will be primarily driven by increased trade in natural resources and manufactured products, including food and transportation goods, as India’s middle class continues to grow. Since 2022, Canada and India have been engaged in discussions on a limited trade agreement, focusing on industries such as agriculture, chemicals, green technologies, infrastructure, automotive, clean energy, electronics, and minerals and metals. It seems like the two countries may be on a path to some kind of deal by the end of the forecast horizon. Overall, we expect that exports to India will grow at an average annual rate of 5.0 per cent between 2023 and 2027.

United Kingdom

The U.K. holds a prominent position as one of Canada’s major trading partners. Following the U.K.’s withdrawal from the European Union, Canada negotiated the Canada-U.K. Trade Continuity Agreement in 2021, aiming to preserve the key benefits of the Comprehensive Economic and Trade Agreement (CETA). Furthermore, in 2022, both countries engaged in further negotiations to establish a comprehensive bilateral trade agreement.

As such, we anticipate that export growth to the U.K. will gain momentum during the forecast period. This growth, however, primarily stems from a recovery phase following a contraction in exports between 2019 and 2022. The U.K. market is considered relatively mature, characterized by an aging population and slower economic growth compared with emerging Asian markets. Consequently, we do not expect the share of exports directed toward the U.K. to reach pre-pandemic levels during our forecast period.

Overall, we project that exports will grow at an average annual rate of 4.6 per cent between 2023 and 2027. This growth will primarily be driven by increasing exports of natural resources and transportation manufacturing.

China

Over the past decade, trade relations between Canada and China have deepened, despite increasingly strained diplomatic ties. While recognizing China as an increasingly disruptive global power in its Indo-Pacific Strategy, Canada also acknowledged the economic opportunities presented by the Chinese market.

We anticipate that China will offer the strongest prospects for export growth in the medium term. This is primarily due to the continued rapid expansion of the country’s economy and middle class, which will drive demand for agricultural, energy, and primary metal products. Energy exports to China are expected to experience significant growth by 2027, mainly due to the completion of LNG export terminals on the West Coast and China’s growing need for energy.

Nevertheless, the outlook comes with risk. As observed in recent years, China frequently employs trade barriers during periods of heightened diplomatic tensions, and these tensions are seemingly ever more common. For instance, China’s ban on Canadian beef, imposed over a year ago, continues to impact the industry. And countries across the world, including Canadian allies such as Australia, have also faced restrictions from China over diplomatic issues.

Despite these challenges, we project that aggregate trade with China will continue to rise as China’s economy becomes an ever more dominant force globally. We anticipate that exports to China will grow at an average annual rate of 8.9 per cent between 2023 and 2027.

Rest of Europe

Canadian exports to Europe (which is defined as the European Union excluding the United Kingdom)¹ will continue to benefit from the Comprehensive Economic Trade Agreement (CETA). However, we anticipate that export growth will remain modest compared with other regions. This is primarily due to a weak economic outlook for the region, driven by its weak demographic profile. Weak economic growth ultimately leads to fewer opportunities for Canadian exporters, especially as Canadian firms compete with many European companies for manufactured goods. We expect primary metals and energy to be the main drivers of export growth to Europe.

The conflict in Ukraine has led Europe to reduce its energy dependence on Russia, creating potential opportunities for Canada’s energy sector. However, Canada currently lacks the export capacity to fully meet the demands of its European allies. Although there are several proposed energy projects in Atlantic Canada, most are unlikely to be completed by the end of our forecast period. As a result, by 2027, total energy exports to Europe are expected to still be below the peak levels achieved in 2018, in part because European countries are attempting to fast-track the path toward net zero.

Overall, exports to Europe are projected to increase by an average of 2.9 per cent per year between 2023 and 2027.