Business confidence subdued amid tariffs but 'worst-case' less likely: BoC survey
A pair of reports from the Bank of Canada say tariff-related uncertainty continued to put a damper on business and consumer sentiment in the second quarter, but the worst-case trade scenarios previously anticipated seem less likely.
The central bank’s business outlook survey said business sentiment is "still subdued," but has improved from the sharp declines recorded in March and April 2025.
It said 28% of firms are now planning for a recession in Canada, down from 32% last quarter but still up from 15% over the previous two quarters.
"Tariffs and trade tensions continue to weigh on the outlooks of many firms. In some cases, the negative effects on costs and sales that most businesses predicted last quarter have materialized, and firms expect them to persist," the report said. "At the same time, firms have moderated their expectations for negative impacts."
It said one-third of firms expected higher tariff-related costs this quarter, compared with around two-thirds last quarter.
"Nevertheless, uncertainty around financial, economic and political conditions remains the top concern for firms," the report said. "While worries about tariffs directly affecting Canadian businesses have eased slightly, new concerns have emerged about the broader impacts of tariffs on the global economy and on demand in Canada."
It added that uncertainty is still holding back firms on new investment plans, as they continue to conservatively manage their finances.
Sales outlooks remain pessimistic overall due to widespread concerns about the effects of a slowing economy, but the report said recent monthly surveys suggest some improvement in firms’ outlooks.
That's especially the case among exporters because few have been directly affected by current tariffs, it said. However, exporters currently facing sectoral U.S. tariffs, such as steel and aluminum manufacturers and firms in the auto sector, continued to report weak outlooks.
Weakness in near-term sales expectations has largely been driven by "broad spillover effects from the trade conflict," the report said.
That includes weak spending on services and capital goods by business customers, low consumer spending or concerns that consumers could start to spend less, weak outlooks in the housing sector, and soft sales outlooks among oil and gas firms.
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Meanwhile, the Canadian survey of consumer expectations said spending intentions have weakened further because of persistent tariff threats.
Consumers also continued to see the labour market as soft amid "elevated" fears of job loss.
"The trade conflict is leading consumers to become increasingly cautious about their spending plans and to change their spending behaviour," the consumer survey said, adding many respondents expressed a desire to prioritize spending on Canadian goods and domestic vacations.
It noted consumers’ short-term inflation expectations have seen little change since increasing markedly in the first quarter of the year.
"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," it said. "More consumers cited tariffs as the most important factor affecting the Bank of Canada’s ability to control inflation."
The business outlook survey was done between May 8 and 28, while the Canadian survey of consumer expectations was conducted between April 24 and May 15, with follow-up phone interviews between May 20 and 26.
The reports come ahead of the Bank of Canada’s next interest rate decision and monetary policy report set for July 30.
Deputy governor Sharon Kozicki signalled in a speech last month that the Bank of Canada has been relying more on alternative data sources such as surveys to cut through some of the uncertainty in traditional economic data.
The central bank held its key interest rate steady at 2.75% in April and June.
