Businesses eye non-US markets while holding back on jobs and expansion plans
Canadian companies are trimming hiring plans and delaying expansion even as a small but growing group quietly shifts exports beyond the US in response to trade tensions.
According to the Bank of Canada’s fourth-quarter survey of business sentiment cited by the Financial Post, more than half of exporters said their sales to the US had decreased over the past 12 months, although most reported slight rather than steep declines.
Nearly 9 percent of exporters reported slightly higher sales to non-US markets in the fourth quarter, up from 1.2 percent in the previous quarter, as some firms already active abroad increased their focus there.
The same Bank of Canada survey found that one-third of firms experienced a drop in sales volumes over the past year, above the historical average of one-quarter.
With demand expected to remain soft, “the majority of businesses” plan to maintain or reduce staffing levels, and layoffs are more likely than new hires for more than half of firms surveyed, the Financial Post said.
Bloomberg reports that over 20 percent of firms expect future employment levels to be lower, and most businesses do not face capacity constraints or labour shortages, suggesting slack rather than overheating.
The central bank’s business outlook indicator improved to -1.78 in the fourth quarter from -2.3, the highest reading since before the trade war began, but policymakers still describe sentiment as “subdued.”
Across both surveys, businesses consistently point to uncertainty over financial, economic and political conditions, slowing demand and cost pressures as their main concerns, according to the Financial Post.
The Bank of Canada said firms continue to report negative effects from tariffs and trade tensions—more often indirect than direct—but they do not expect these effects to worsen further.
Investment plans show cautious improvement.
Bloomberg reports that 37 percent of firms expect higher machinery and equipment spending, bringing intentions closer to historical averages, but businesses mainly plan to replace existing assets rather than expand capacity.
As per the Financial Post, the Bank of Canada found that firms are prioritizing routine maintenance amid trade tensions, and investment is expected to fall in some sectors for specific industry reasons.
Tariffs and trade-related costs remain a major source of upward pressure on input prices, but fewer firms cited these costs in the fourth quarter while commodity price changes increasingly drive price expectations.
According to Bloomberg, about 60 percent of firms now expect inflation between 2 percent and 3 percent over the next two years, up from 51 percent in the previous survey, and wage growth expectations have edged higher.
On the policy side, the Bank of Canada is expected to hold its key interest rate at 2.25 percent for most of the year, with officials indicating that current borrowing costs are roughly appropriate as the economy adjusts to the impact of tariffs.
