Canada's trade deficit widened sharply in February, reaching CAD 5.7 billion, significantly exceeding market expectations of a CAD 2.5 billion shortfall, according to Royal Bank of Canada (RBC) analysts [1]. The spike was attributed to both exports and imports rising markedly, with approximately one-third of the import increase stemming from a surge in gold product imports. Additionally, stronger demand for equipment and consumer goods contributed to the higher import figures [1].
RBC notes that the surge in gold imports was a one-off event, and expects the nominal trade deficit to shrink in March, as the February gold import spike is unlikely to be repeated [1]. On the export side, motor vehicle shipments surged, suggesting that production disruptions affecting manufacturing output in late 2025 and early 2026 are easing [1].
The widened trade deficit is tracking as a sizable subtraction from Q1 GDP growth, though this is being partially offset by robust business and consumer spending from domestic buyers [1]. RBC projects that trade will be a smaller drag on Canadian growth in 2026, indicating a more positive outlook for the country's trade balance moving forward [1].
CONCLUSION
Canada's February trade deficit was much larger than anticipated, driven by exceptional gold imports and strong motor vehicle exports. RBC expects the deficit to narrow in March and sees trade as a less significant drag on growth in 2026. The market takeaway is cautiously optimistic, with short-term volatility but improving prospects for Canadian trade.