Canadian businesses have a slightly more positive outlook compared to earlier this year, but they are hesitant to increase investments or hiring due to the impact of U.S. tariffs, according to a recent survey by the Bank of Canada. The survey, which assesses expectations regarding inflation, sales, and hiring, revealed that tariffs and trade tensions continue to overshadow the prospects of many businesses. Despite some improvement in business sentiment from early 2025, the overall sentiment remains moderate.
The business outlook indicator, which summarizes business activity, prices, costs, and capacity, rose to -2.28 in the third quarter from -2.40 in the previous quarter. The survey, conducted between Aug. 7 and Sept. 3, indicated that firms do not anticipate a significant growth in sales in the upcoming year, attributing it to the impact of tariffs on demand. However, there was a slight improvement in the balance of opinion regarding future sales.
Concerns about a potential recession in the next year increased slightly, with 33% of firms expressing such worries, up from 28% in the second quarter. The BoC stated that these concerns offset the otherwise positive shift in business sentiment. Many businesses are delaying new investments and capital expenditure while keeping their hiring plans subdued, largely due to the ongoing impact of tariffs.
The Bank of Canada released the survey shortly before its upcoming rate decision announcement and quarterly economic projections. Market expectations suggest a 77% chance of a 25-basis-point rate cut. Inflation expectations for the next year are around three percent, similar to the previous quarter, but firms are experiencing cost pressures.
Businesses anticipate a faster increase in input prices over the next 12 months compared to the previous year, while wage growth is expected to slow down. A separate survey on consumer expectations revealed that 64.1% of Canadians anticipate a recession in the next 12 months, showing a slight decrease from the previous quarter’s figure of 64.4%.