Canadian companies are feeling slightly more optimistic about business conditions compared to earlier this year but are hesitant to increase investments or hiring due to the negative impact of U.S. tariffs, according to a recent survey by the Bank of Canada.
The quarterly business outlook survey, closely monitored by the BoC and economists, assesses Canadian firms’ expectations regarding inflation, sales, and employment. The survey highlighted that tariffs and trade tensions continue to cast a shadow on many companies’ outlooks, despite an overall improvement in business sentiment since early 2025.
The business outlook indicator, which summarizes business activity, prices, costs, and capacity, rose to -2.28 in the third quarter from -2.40 in the previous quarter. The survey, conducted between August 7 and September 3, revealed that firms do not anticipate a significant boost in sales growth in the coming year due to ongoing tariff-related demand challenges.
While there was a slight improvement in future sales expectations, the survey noted a slight increase in the percentage of firms expecting a recession within the next year, rising from 28% to 33% compared to the second quarter. Concerns about a potential downturn have offset the positive shift in business sentiment, as firms are delaying new investments and capital expenditures while maintaining cautious hiring plans, citing the impact of tariffs.
The Bank of Canada released the survey shortly before its upcoming rate decision announcement and quarterly economic projections. Market expectations suggest a high likelihood, around 77%, of a 25-basis-point rate cut. Inflation expectations for the next year remain stable at around three per cent in the third quarter, with companies reporting cost pressures.
Businesses anticipate a faster increase in input prices over the next 12 months compared to the previous year, while wage growth expectations are on a downward trend. Additionally, a separate consumer survey conducted by the central bank revealed that 64.1% of Canadians foresee a potential recession in the coming year, a slight decrease from the previous quarter’s figure of 64.4%.