Canadian businesses are feeling slightly more optimistic about current conditions compared to earlier this year, but they are hesitant to increase investments or hiring due to the negative impact of U.S. tariffs, according to a recent survey conducted by the Bank of Canada.
The quarterly business outlook survey is closely monitored by the Bank of Canada and economists to assess Canadian firms’ expectations regarding inflation, sales, and employment prospects.
The survey highlighted that tariffs and trade tensions continue to cast a shadow on the outlook of many businesses. While there has been a gradual improvement in business sentiment from the earlier part of 2025, it has remained at a moderate level.
The overall business outlook indicator, which summarizes business activity, prices, costs, and capacity, increased to -2.28 in the third quarter from -2.40 in the previous quarter.
The survey, conducted between August 7 and September 3, indicated that firms do not anticipate a significant growth in sales in the coming year, citing the ongoing impact of tariffs on demand. However, there was a slight improvement in the sentiment regarding future sales.
Concerns about a potential recession in the next year saw a slight uptick, with 33% of firms expressing such concerns, up from 28% in the previous quarter. This increase in recession fears offset the overall improvement in business sentiment, as reported by the Bank of Canada.
The survey also revealed that businesses are reluctant to invest in expanding capacity. Many are delaying new investments while keeping their hiring plans limited, all due to the repercussions of tariffs.
The Bank of Canada released the survey shortly before its upcoming decision on interest rates and the release of quarterly economic projections. Market predictions suggest a high likelihood of a 25-basis-point rate cut, currently at around 77%.
Inflation expectations for the next year remain at approximately three percent in the third quarter, similar to the previous quarter. However, businesses are experiencing notable cost pressures.
Businesses anticipate a faster increase in input prices over the next 12 months compared to the previous year, while wage growth forecasts for the next 12 months continue to trend downwards.
A separate survey by the central bank on consumer expectations revealed that 64.1% of Canadians anticipate a recession within the next 12 months, a slight decrease from 64.4% in the second quarter.
