Widening of the Canadian trade deficit with a decline in car exports

The trade deficit in Canada widened during January with a decline in goods exports, especially in the automotive and parts sector, indicating a relatively weak economic start to 2026.
Data from Statistics Canada showed that Canadian goods exports fell by 4.7 percent in January, the largest monthly drop since April 2025, leading to an increase in the trade deficit to 3.65 billion dollars.
Economic forecasts had indicated a possible decrease in the deficit to about 1.1 billion dollars compared to about 1.3 billion dollars in December, but the sharp decline in automotive exports led to the opposite result.

Significant decline in automotive exports

Vehicle and parts exports were the main factor behind the drop in exports, falling by 21 percent to reach 5.4 billion dollars, the lowest level since September 2021.
Private car and light truck exports saw the largest decrease, dropping by about 33 percent, partly due to prolonged seasonal production stoppages at some car factories during that period.
Automotive imports and parts also decreased by 4.5 percent due to unusual production stoppages in the sector.

Ongoing pressures on the automotive industry

The Canadian automotive sector has faced increasing challenges over the past year, especially due to U.S. tariffs that affected integrated supply chains between Canada and the United States.
Automotive and parts exports fell by about 40 percent compared to January of last year, when companies rushed to increase shipments across the border before the tariffs came into effect.

Government moves to support the industry

In an attempt to mitigate the impact of these challenges, Prime Minister Mark Carney announced last month a new plan to boost the domestic automotive industry, including additional financial incentives for companies investing in production within Canada.

Imports also declined

Overall, Canadian imports fell by 1.1 percent during January, despite an increase in imports of industrial equipment, machinery, and parts, including shipments of equipment coming from China to build liquefied natural gas production facilities in the province of British Columbia.

Impacts on trade relations

The Canadian trade surplus with the United States also shrank during the same month, as exports to the U.S. market fell by 3.8 percent compared to a 3.4 percent decline in imports.
In contrast, Canadian exports to other countries dropped by 6.5 percent after reaching a record level in December, mainly due to a decrease in shipments of unprocessed gold to the United Kingdom.

Signs of economic slowdown

Economic analysts see that the decline in exports along with lower wholesale sales in January indicates that Canadian economic growth may have started 2026 at a slower pace than expected.
This slowdown may ease pressure on the Bank of Canada to raise interest rates in the near term, especially amid global oil price fluctuations.
The central bank had kept the key interest rate at 2.25 percent in its last meeting, with broad expectations that it will remain unchanged in its next meeting.