Canadian businesses are feeling slightly more optimistic compared to earlier this year, but they are hesitant to increase investments or hiring due to the negative impact of U.S. tariffs, as per a recent Bank of Canada survey. The survey, which is closely monitored by the central bank and economists, provides insights into Canadian firms’ expectations regarding inflation, sales, and employment.
Despite a slight improvement in overall business sentiment from earlier in the year, the survey indicates that tariffs and trade tensions are still casting a shadow on the outlook for many companies. The business outlook indicator, which summarizes business activity, prices, costs, and capacity, rose to -2.28 in the third quarter, up from -2.40 in the previous quarter.
According to the survey conducted between August 7 and September 3, firms are not anticipating a significant growth in sales over the next year, mainly due to the impact of tariffs dampening demand. However, there has been a slight improvement in the outlook for future sales.
Concerns about a potential recession have also increased slightly, with 33% of firms now expecting a downturn in the next year, up from 28% in the previous quarter. The BoC noted that worries about a possible economic downturn are offsetting any positive momentum in business sentiment.
The survey revealed that companies are holding back on additional capital investments to expand capacity, with many delaying new investments while maintaining cautious hiring intentions, largely due to the effects of tariffs. This cautious sentiment was echoed in consumer expectations as well, with 64.1% of Canadians anticipating a recession in the next 12 months, a slight decrease from the previous quarter.
As the Bank of Canada prepares to announce its latest rate decision and release quarterly economic projections, market expectations reflect a high probability of a 25-basis-point rate cut. Inflation expectations for the next year remain around three percent, similar to the previous quarter, but businesses are facing significant cost pressures. Despite expectations of rising input prices, wage growth over the next year is projected to slow down.
