The Economy of Canada: An Explainer

Canada's economy is highly developed and one of the largest in the world. In 2020, the country's annual gross domestic product (GDP) was $1.64 trillion in current USD, according to the latest available World Bank data. That made Canada the world's ninth-largest economy.

Canada's economy is highly dependent on international trade with exports and imports of goods and services each comprising about one-third of GDP. The country's three largest trading partners are the U.S., China, and the U.K. Its three largest industries, measured by their contributions to GDP, are real estate, rental, and leasing; manufacturing; and mining, quarrying, and oil and gas extraction.

Canada is home to the e-commerce company Shopify Inc. (SHOP.TO, SHOP), major banks such as the Royal Bank of Canada (RY.TO, RY), and energy transportation and distribution company Enbridge Inc. (ENB.TO, ENB).

The COVID-19 pandemic caused Canada's economy to pull back sharply in the first half of 2020 before rebounding in the latter half of the year. In the second quarter of 2020, real GDP fell 11.3% quarter-over-quarter (Q/Q), but rose 9.1% Q/Q in the third quarter and then 2.2% Q/Q in the fourth quarter of 2020, offsetting the steep decline earlier in the year.

Real GDP was up 0.3% in the first quarter of 2021 compared to the first quarter of 2020. The increase in first-quarter GDP was fueled in part by low mortgage rates, rising housing demand, and government transfers to households and businesses.

The CAD/USD exchange rate used in this story is 0.787149 as of Sept. 9, 2021.

Some of the statistics below may vary between sources because each source uses its own methodology for defining and calculating statistics.

The Canadian Economy by the Numbers

• Canadian 2020 GDP: $1.64 trillion (World Ranking: #9).
• Canadian 2020 GDP per Capita: $43,241.62 (World Ranking: #29).
• Canadian 2020 GDP Growth: -6.428%.
• Canadian 2020 Consumer Price Index (CPI) Inflation: 0.7%.
• Canada's December 2020 Balance of Trade in Goods and Services: a deficit of CAD$36.2 billion ($28.6 billion) because imports were greater than exports.
• Canada's Largest Export Destination in May 2021: the U.S. (63.5% of goods exported).
• Canada's Largest Import Origin in May 2021: the U.S. (50.6% of goods imported).
• Canada's Largest Goods Export by $ Value in 2021: crude petroleum CAD$7.31 billion ($5.77 billion).
• Canada's Largest Goods Import by $ Value in 2021: cars CAD$3.13 billion ($2.47).

Canada's Top Industries: Real Estate, Manufacturing, and Mining

Real Estate, Rental, and Leasing

Canada's real estate, rental, and leasing industry is comprised of establishments engaged in the following types of activities: real estate management; selling, renting, or buying real estate for others; appraising real estate; rental and leasing of tangible assets such as automotive equipment; and leasing of nonfinancial intangible assets such as copyrighted works.

GDP for the industry, which employs about 250,000 people, rose 3.7% for the 12 months ending June 2021, according to the Government of Canada.

Some of the biggest companies in the industry are real estate investment trusts (REITs), including Canadian Apartment Properties REIT (CAR.UN), RioCan REIT (REI.UN), and Allied Properties REIT (AP.UN).

Manufacturing

Canada's manufacturing industry is engaged in the physical or chemical transformation of materials or substances into new products. These products may either be finished goods for consumption or semi-finished goods to be used in manufacturing processes.

Canada's industries manufacture food, chemicals, petroleum, fabricated metal products, machinery, transportation equipment, and other products. GDP for the industry, which employs approximately 1.5 million people, grew 8.1% for the 12 months ending June 2021, according to the Government of Canada.

Some major Canadian manufacturers include ATS Automation Tooling Systems (ATA.TO), a custom engineer and manufacturer of industrial automated manufacturing systems; Ballard Power Systems Inc. (BLDP.TO, BLDP), a manufacturer of hydrogen fuel cells; and NFI Group Inc. (NFI.TO), a manufacturer of heavy-duty transit buses.

Mining, Quarrying, and Oil and Gas Extraction

Canada's mining, quarrying, and oil and gas extraction industry is primarily engaged in the extraction of naturally occurring minerals. The industry is dominated by oil and gas extraction, but other types of mining activity include mining coal and a range of metals, including gold, silver, copper, nickel, and more. Stone, sand, gravel, clay, and ceramic mining and quarrying are also part of the industry, as well as mining for potash.

GDP for the industry, which employs approximately 190,000 people, grew 15.1% for the 12 months ending 2021, according to the Government of Canada.

Some of Canada's biggest mining companies include Nutrien Ltd. (NTR.TO, NTR), a producer and distributor of potash, nitrogen, and phosphate products; Barrick Gold Corp. (ABX.TO, GOLD), a gold mining company; and Teck Resources Ltd. (TECK.B.TO, TECK), a natural resource company that mines for zinc, copper, molybdenum, gold, and metallurgical coal.

Below is a closer look at Canada's 10 biggest industries by contribution to the economy. Together, they are an important reflection of Canada's economy because they contribute about three-quarters of the nation's GDP.

^{Source: Statistics Canada (industry GDP and employment data); industry GDP contributions based on seasonally adjusted chained 2012 Canadian dollars.}

Canada's Top Trading Partners

In May 2021, Canada's trade balance for goods and services was CAD$1.8 billion deficit ($1.41). Total imports were CAD$50.9 billion ($40.13 billion). Inventories, gross fixed capital formation, and exports each comprise roughly a third, respectively, of Canada's GDP, according to the Government of Canada.

The country's top three trading partners in 2020, by total volume of the exports and imports of goods and services, were the U.S., China, and the U.K.

#1 Trading Partner: The U.S.

In July 2021, Canada ran an overall surplus of CAD$0.78 billion ($0.61) in its balance of trade (BOT). Total exports of goods amounted to CAD$53.7 billion ($42.32). Total exports of services were $56.3 billion while services imports amounted to CAD$53 billion ($41.77). In May 2021, Canada's top goods export to the U.S. was crude petroleum; its top goods import from the U.S. was cars, according to the Observatory of Economic Complexity.

Canada's trade relationship with the U.S., as well as Mexico, is governed by the United States-Mexico-Canada Agreement (USMCA), which came into force on July 1, 2020. The agreement includes key provisions in areas such as dairy and agriculture, automobiles, intellectual property, and labor. USMCA replaced the North American Free Trade Agreement (NAFTA), the trade agreement that had governed trade relations between the three countries since 1994.

# 2 Trading Partner: China

Canada ran a large BOT deficit with China in 2020. Total exports of goods amounted to CAD$31.6 billion ($23.6) while total goods imported were CAD$51.9 billion ($38.7), resulting in a deficit in Canada's trade of goods with China. Total 2019 exports of services were $6.1 billion while total services imported amounted to $2.5 billion, resulting in a services trade surplus with China, according to Statistics Canada. Canada's top goods export to China in 2020 was coal. Its top goods import from China was computers.

#3 Trading Partner: The U.K.

Canada ran a BOT surplus with the U.K. in 2020. Total exports of goods were $14.9 billion while total goods imported were $5.85 billion, resulting in a surplus in Canada's trade of goods with the U.K. Total exports of services amounted to $1.4 billion while total services imported were $1.8 billion, resulting in a slight services trade deficit with the U.K., according to Statistics Canada. Canada's top goods export to the U.K. in 2020 was pearls, precious stones, metals, and coins. Its top goods imports from the U.K. were machinery, nuclear reactors, and boilers.

The Canada-United Kingdom Trade Continuity Agreement (Canada-UK TCA) recently came into effect on April 1, 2021. Following Brexit, the U.K.'s exit from the European Union (EU), the Canada-UK TCA preserves the main benefits of Canada's trade agreements with the EU as outlined under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA).

The Bottom Line

Canada is a highly developed nation with one of the largest economies in the world, impacting much of global trade. Its largest industries are real estate, mining, and manufacturing, and it is home to some of the largest mining companies in the world. A large portion of its GDP comes from international trade, with its largest trading partners being the U.S., China, and the U.K.