Business conditions have deteriorated due to the trade conflict with the United States, according to results from the Business Outlook Survey and the Business Leaders’ Pulse, says the Bank of Canada.
“Sales outlooks have softened, particularly for exporters. Firms reported having sufficient capacity, and many are delaying investment and hiring decisions amid uncertainty. Firms expect that widespread tariffs would raise costs and lead to higher selling prices. In this context, expectations for inflation are higher than they were last quarter,” it said in its Business Outlook Survey—First Quarter of 2025.
Also the Bank said overall, results of the first-quarter 2025 Canadian Survey of Consumer Expectations “show that the escalating trade conflict with the United States is damaging consumer sentiment. Confidence in the labour market has weakened significantly, and consumers have become more pessimistic about their financial health. Although consumption plans had been improving over the past several quarters, consumers now intend to spend more cautiously given the uncertainty around the trade conflict. They expect the trade conflict to lead to a higher cost of living, and this has pushed up their inflation expectations.”
In its Business Outlook, the Bank found:
- Business sentiment has deteriorated, and uncertainty is widespread due to the trade conflict with the United States. Firms are developing plans to mitigate the effects of tariffs on their operations but see many challenges ahead.
- Fewer businesses than last quarter expect sales growth to improve over the coming year. Firms reported having sufficient capacity to meet expected demand.
- In the current economic environment, many businesses are delaying important decisions, such as those related to investment and hiring, until they have a clearer outlook. Hiring intentions are weak.
- Firms no longer expect growth in their input prices to slow. Two-thirds of businesses believe that their costs would be pushed higher if widespread tariffs are implemented. As a consequence, many firms would increase their selling prices.
- Near-term inflation expectations are higher than last quarter, with firms believing the inflationary impacts from tariffs will outweigh reduced pressures from weak demand.
In its Consumer Survey, the Bank found:
- Overall, results of the first-quarter 2025 survey show that the escalating trade conflict with the United States is damaging consumer sentiment.
- Confidence in the labour market has weakened sharply. This is because many consumers—notably those working in sectors that are highly dependent on trade—are worried about losing their job. In this context, consumers have also become more pessimistic about their financial health.
- Although consumption plans had been improving over several quarters, consumers now intend to spend more cautiously given the uncertainty around the trade conflict. In addition, elevated housing costs and the high prices of many goods and services continued to weigh on households’ spending plans.
- Consumers expect the trade conflict to lead to a higher cost of living. This is reflected in their short-term inflation expectations, which rose in the first quarter of 2025.
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