Trade Uncertainty Sapping Optimism, Bank of Canada Surveys Show

Mooring crews prepare to tie up a container ship arriving at the Fairview Container Terminal in the Port of Prince Rupert in Prince Rupert, British Columbia. Photo by James MacDonald /Bloomberg

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(Bloomberg) — Bank of Canada surveys show persistent pessimism among firms and consumers as the ongoing US trade war deepens uncertainty.

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The central bank’s business outlook indicator rose slightly to minus 1.78 in the fourth quarter, up from minus 2.3 previously. While that’s the highest level since before the trade war began about a year ago, policymakers said sentiment is “subdued,” and most firms plan to maintain or decrease staffing levels.

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“Businesses continue to cite uncertainty surrounding financial, economic and political conditions, slowing demand and cost pressures as their more pressing concerns,” the bank said in the report Monday.

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US President Donald Trump’s tariffs and unpredictable trade policy have battered key Canadian sectors including autos, steel and lumber, and weighed on the broader economy. A review of the US-Mexico-Canada Agreement is due in July, adding to uncertainty.

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Sales growth has been weak over the past year, with a third of businesses seeing a decline in sales volume, the bank said. At the same time, more firms in the survey see growth in future sales and expect export sales to “improve slightly.”

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Over 20% of firms say they expect future employment levels to be lower, and most firms reported no capacity constraints or labor shortages, the bank said.

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Investment spending intentions also improved, moving closer to historical averages, with 37% of firms saying they expect higher machinery and equipment outlays. Still, businesses say that spending is primarily intended to replace existing items, in lieu of expanding production.

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And though tariffs and trade-related costs remain a major source of upward pressure for input prices, the bank said fewer firms cited those costs in the fourth quarter, while commodity price changes increasingly drove price expectations. Wage growth expectations edged higher.

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Some 60% of firms expect inflation between 2 and 3% over the next two years, up from 51% in the previous survey.

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Oil Outlook 

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Lower oil prices are also weighing on sentiment in the oil and gas sector, the central bank said, with firms expecting West Texas Intermediate to hold near $60 a barrel this year amid global oversupply.

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“Oil sands production, which accounts for the majority of Canada’s crude oil production, generally remains viable at currently expected price levels,” the bank said.

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And while firms said “current and proposed capacity improvement projects for existing pipelines” are likely to steady the price differential with Canadian crude, the bank said firms expect a 1.7% decline in capital expenditures in the sector in 2026. Still, they expect production to increase.

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Prime Minister Mark Carney is pushing to diversify Canada’s export markets and last week inked a series of deals with China, including on expanding energy trade. Carney is backing an effort by Alberta Premier Danielle Smith to find private-sector funding for a new oil pipeline to Canada’s west coast.