Global capital chases Canadian assets while local firms shift from outbound M&A to reinvested earnings
Foreign investors pushed direct investment into Canada to its highest level since 2007 last year, even as Canadian firms pulled back sharply on new outbound deals.
According to Statistics Canada, foreign direct investment (FDI) in Canada reached $96.8bn in 2025, the strongest annual inflow since 2007, with $25.1bn arriving in Q4 alone.
Statistics Canada said mergers and acquisitions were a major driver, with $43.6bn in M&A activity and more than half of 2025’s inward FDI originating from the United States.
TD Economics also said foreign direct investment into Canada totalled $25.1bn in Q4, bringing full‑year 2025 to $96.8bn, up from $91.6bn in 2024 and marking the highest annual inflows since 2007.
TD Economics reported that merger‑and‑acquisition activity was the primary driver, with sector gains concentrated in trade and transportation and management companies, followed by manufacturing.
BNN Bloomberg reported that FDI into Canada totalled $25.1bn between October and December, up from a revised $17.5bn in Q3, and that yearly inflows reached $96.8bn, the highest since 2007.
Net inflows in Q4 came mainly from mergers and acquisitions, primarily originating from the US, including transactions involving Nova Chemicals, GFL Environmental and Vancouver‑based Sandstorm Gold Ltd.
The composition of inflows also shifted.
TD Economics said US direct investment into Canada was $12.1bn in Q4 and $52.5bn for 2025, roughly in line with 2024. It added that non‑US FDI totalled $3.7bn in Q4 and $40.9bn for the year, up modestly from $39.4bn in 2024, with the United Kingdom as the largest non‑US source.
TD Economics highlighted that UK investors accounted for about 12 percent of inward FDI and acted as a “swing factor” for overall inflows in 2025.
Citing Investment Canada Act filings, TD Economics said there were roughly 50 investment notifications from UK‑registered entities through November 2025, and that over 40 percent of those involved acquisitions of Canadian software firms, from cybersecurity to AI‑powered asset management.
TD Economics added that Rio Tinto’s acquisition of Livent Lithium Quebec, part of its US$6.7bn global takeover of Arcadium Lithium, was almost certainly the largest deal.
On the other side of the ledger, Canadian direct investment abroad dropped to its lowest level since 2020.
Statistics Canada said Canadian direct investment abroad totalled $79.4bn in 2025, with reinvested earnings in foreign affiliates accounting for $80.4bn of that, while merger and acquisition activity resulted in a net divestment of $3.0bn as sales of existing assets exceeded acquisitions.
Statistics Canada reported that two‑thirds of direct investment abroad involved countries other than the United States, with trade and transportation, management of companies and enterprises, and manufacturing as the main investing sectors.
TD Economics said Canadian direct investment abroad slowed to $13.5bn in Q4, bringing full‑year 2025 to $79.4bn, well below 2024’s $123bn and the lowest since 2020.
It said the softness came mainly from a pullback in mergers and acquisitions, which registered $3bn of total divestment, while reinvested earnings reached $80bn, up $11bn from 2024.
TD Economics noted that Canadian direct investment in the United States was $12bn in Q4 and $27.6bn for 2025, less than half of 2024’s $65.5bn, and that investment to non‑US destinations fell to $48.6bn from $62.2bn.
In its “Key Implications,” TD Economics said Canadian investors “hit the pause button on new direct flows in 2025,” and pointed to outward FDI to the US as the main pressure point.
BNN Bloomberg reported that Canadian investment abroad totalled $13.5bn in Q4 and $79bn for the year, the weakest since 2020.
Net investment into Canada exceeded net outflows by $17.4bn in 2025, a major reversal from 2022, when $49.3bn more investment left the country than came in.
This shift in capital flows sits alongside a still‑negative current account.
Statistics Canada reported that Canada’s current account deficit narrowed to $0.71bn in Q4 from $5.27bn in Q3.
Statistics Canada noted that the fourth quarter of 2025 marked the 14th consecutive quarter of current account deficit, and that the annual deficit widened to $30.4bn in 2025 from $15.0bn in 2024, largely because the goods trade deficit increased to $31.1bn, the largest since 2020.
Policy makers are explicitly trying to influence where the next wave of flows comes from.
TD Economics said direct investment is the channel most closely associated with long‑term economic integration and is where “the diplomatic handshakes either show up in the data or don’t.”
On that front, the Prime Minister’s Office said Prime Minister Mark Carney will travel to India, Australia and Japan from February 26 to March 7, 2026, to “unlock new opportunities for Canadian workers and businesses across trade, energy, technology, and defence” and to deepen ties with key Indo‑Pacific partners.
The Prime Minister’s Office said he will meet Prime Minister Narendra Modi in India, Prime Minister Anthony Albanese in Australia and Prime Minister Takaichi Sanae in Japan, focusing on trade, investment, clean energy, critical minerals, advanced manufacturing, technology and security.
TD Economics said that, with these incremental engagements, “we may see a more diversified flow of direct investment towards the second half of the year.”
