The Bank of Canada’s Business Outlook Survey, released on Monday, said tariffs and related uncertainty, along with spillover effects on the Canadian and global economies, continue to have major impacts on businesses’ outlooks.
“However, the worst-case scenarios that firms envisioned last quarter are now seen as less likely to occur,” it said.
Key findings from the Bank of Canada survey:
- Sales outlooks remain pessimistic overall due to widespread concerns about the broader effects of a slowing economy. But recent monthly survey results suggest some improvement in firms’ outlooks—particularly among exporters—because few have been directly affected by the current tariffs.
- Uncertainty continues to drive cautiousness in outlooks for hiring and investment. Most firms expect to maintain current staffing levels and limit investment to regular maintenance over the next 12Â months.
- For some, cost increases due to tariffs and trade uncertainty have materialized. Affected firms see weak demand and competition as constraining their ability to pass cost increases on to their customers, although most still plan for some pass-through.
- Businesses’ expectations for short-term inflation have returned to levels reported at the end of 2024.
The Bank’s Canadian Survey of Consumer Expectations, also released on Monday, said consumers continued to see the labour market as soft.
“Fears of job loss remain elevated but have declined slightly since last quarter,” it said.
Other key findings of the Bank of Canada survey:
- The trade conflict is leading consumers to become increasingly cautious about their spending plans and to change their spending behaviour. Many respondents expressed a desire to prioritize spending on Canadian goods and vacations in Canada.
- Consumers’ short-term inflation expectations have changed little since increasing markedly in the first quarter of 2025. While consumers expect large increases in motor vehicle prices over the next 12 months, their inflation expectations for essential goods and services declined this quarter. More consumers cited tariffs as the most important factor affecting the Bank of Canada’s ability to control inflation.
Maria Solovieva, Economist, TD Economics, said business and consumer optimism remains subdued compared to late 2024, with firms anticipating weaker sales and consumers planning to cut back spending.
“In this defensive environment, we maintain our view for a weak Q2. Looking ahead, any easing of trade tensions, or at least more clarity around the scope and level of tariffs, could help prevent Q2 weakness from bleeding into Q3,” she said.
“One development that will not escape the Bank of Canada’s attention is the stickiness in inflation expectations. After rising last quarter, the sustained uptick in long-term views of both businesses and consumers, coupled with strong core inflation prints, likely seals off the path to a July rate cut.”
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