A small but growing share of Canadian businesses has increased sales to markets outside the United States in response to trade tensions that continue to weigh heavily on sales and staffing decisions, according to the Bank of Canada.

In its fourth-quarter survey of business sentiment, the central bank said most firms expect export growth to be modest, with layoffs more likely than new hires for more than half the businesses surveyed.

“With demand expected to remain soft, the majority of businesses plan to maintain or decrease current staffing levels,” the survey said.

One-third of businesses surveyed reported a decline in sales volume over the past 12 months, above the historical average of one-quarter of firms. In the fourth-quarter survey, more than 52 per cent of exporters said their sales to the U.S. had decreased, a slight dip from the previous quarter with a greater share reporting slight rather than significant declines.

Despite falling sales to the U.S. for many Canadian businesses, firms cited barriers to diversification, such as the need for specialized equipment, additional regulatory compliance and transportation costs. However, some exporters already active in non-U.S. markets have increased their focus there, leading to higher sales, the fourth-quarter survey found. Nearly nine per cent of exporters said they had slightly increased sales to non-U.S. markets, up from 1.2 per cent in the third-quarter survey.

Overall sentiment remained subdued as 2025 drew to a close. However, the survey found that businesses were less pessimistic than in the second quarter of the year when firms were digesting escalating tariff threats from the administration of U.S. President Donald Trump.

“Businesses continue to cite uncertainty surrounding financial, economic and political conditions, slowing demand, and cost pressures as their most pressing concerns,” the survey said, adding that while tariff-related cost increases continued to affect businesses in the fourth quarter, they reported fewer such pressures than in the preceding three-month period.

There were a few positive signs in the survey results, among them a finding that a greater number of firms see improved indicators than those that see deteriorated ones. In addition, the share of firms planning or budgeting for a recession in Canada over the next 12 months eased to 22 per cent from 33 per cent, the lowest level reported in 2025.

“While businesses continue to report negative effects — some coming directly from tariffs but even more coming indirectly from trade tensions — they do not expect these effects to worsen further,” the Bank of Canada said.

Broad spillover effects from tariffs and trade-related uncertainty include lower business spending on insurance, advertising and construction, for example, or postponement of purchases because of ongoing trade uncertainty.

Even some firms that aren’t directly impacted by tariffs are feeling the effects when companies that are — such as those in the steel, aluminum and auto sectors — reduce orders for supplies and services. There is also some pessimism among business that rely on household spending, such as those in the housing sector, the survey found.

Investment intentions improved slightly in the fourth quarter, though the Bank of Canada found that firms are prioritizing spending on routine maintenance amid the trade tensions. Meanwhile, investments are expected to decline in some industries for specific sectoral reasons, the survey found, pointing to low oil prices affecting the oil and gas sector.

Source: The Financial Post