Royal Bank of Canada (RBC) economist Abbey Xu notes that Canada’s merchandise trade deficit widened sharply in January as both exports and imports declined. She highlights ongoing volatility from Gold and motor vehicle flows, but expects part of the deterioration to be reversed in February and sees higher energy prices boosting Canadian net exports in March. Net trade is currently subtracting from Q1 GDP growth.

Deficit widens but some support ahead

"Canada's merchandise trade deficit widened to $3.6 billion in January from $1.3 billion in December, as exports and imports fell by 4.7% and 1.1%, respectively."

"Net trade is currently tracking a subtraction from Q1 GDP growth, though monthly trade data remains heavily influenced by episodic shipments of products like gold, motor vehicles, and aircraft."

"While the headline balance deteriorated in January, at least part of the decline will likely be retraced in February, and higher energy prices due to the conflict in the Middle East will add to Canadian net exports in March."

"Trade activity early in 2026 is also unfolding against a relatively more stable trade policy backdrop. By our count, 89.5% of exports were duty-free to the U.S. in January, up slightly from 89.2% in December."

"Still, labour markets have shown signs of (per-person) improvement with the unemployment rate edging lower in recent months and domestic demand has continued to grow on balance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)