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Economic News

Canada: Prolonged Auto-Sector Disruptions Widened January’s Trade Deficit

March 12, 2026
LJ Valencia
Economist

Highlights

  • Canada’s international merchandise trade deficit widened to $3.6B in January from $1.3B in December (graph 1). This was larger than the consensus expectation for a $1.1B deficit. See table for more details.
  • Goods exports fell 4.7% m/m in January, with real exports declining by 6.1% in the month. Imports were down in January, by 1.1%, with volumes decreasing by 2.4%.
  • Canada’s trade surplus with the US fell slightly from $5.7B to $5.4B in January (graph 2). Meanwhile, the trade deficit with countries other than the United States widened from $7.0B to $9.0B.
  • The services trade surplus of $0.4B in December turned into a $0.1B deficit in January. Exports of services decreased by 2.5% m/m while services imports were up 4.1% in the month.

Comments

Six of the 11 export categories recorded declines. Exports of motor vehicles and parts fell 21.2% m/m as prolonged seasonal production stoppages reduced Canadian motor vehicle production during the month. This marked the lowest level in that category since September 2021. Exports of metal and non-metallic mineral products also saw a notable decrease (-8.0%), mainly due to lower gold shipments to the United Kingdom. In contrast, a gain in energy exports (4.1%) helped offset losses in other categories. This was thanks to higher natural gas exports to the United States and a third consecutive monthly rise in crude oil exports.

On the other side of the trade balance, seven out of 11 import categories saw decreases. Imports of motor vehicles and parts posted losses (-4.5%), largely coinciding with lower motor vehicle production in the month. Fewer imports of electronic and electrical equipment parts (-3.6%), such as smartphones from China and the United States, also contributed to the decline. In contrast, higher imports of industrial machinery, equipment and parts (3.4%) reflected increased shipments of modules and equipment for a liquefied natural gas production facility in British Columbia.

Implications

Despite the slump in January’s trade data, net exports are anticipated to contribute modestly to Q1 output growth. This occurred despite US import tariffs External link., which remain low reflecting improved compliance with the Canada-United States-Mexico Agreement (CUSMA), which exempts the majority of Canadian goods exports to the United States from duties. We now expect real GDP to be within the range of 1% to 1.5% annualized in Q1 2026, below the Bank of Canada's tracking of 1.8% growth from the January 2026 Monetary Policy Report External link..

That said, trade disruptions and uncertainty are significant headwinds to growth for 2026. As our latest research External link. suggests, adverse outcomes from the joint CUSMA review could result in materially weaker growth. Although the conflict with Iran External link. presents significant upside risks to growth, the impact on economic activity and the trade balance depend greatly on the duration and severity of the conflict. Lastly, the diversification of trade via Canada’s west coast should also support energy exports moving forward.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.