While Canadian businesses are dialling back their expectations of a recession, cost pressures, weak demand and trade issues are still big concerns, according to the Bank of Canada’s (BoC) latest Business Outlook Survey.
The BoC Q2 2025 report shows some improvement in business sentiment, especially among exporters who are now less concerned about the impact of tariffs. Still, hiring plans, investments and wage growth expectations are all trending downward — signaling a sluggish outlook for the rest of the year.
“Sales outlooks remain pessimistic overall due to widespread concerns about the broader effects of a slowing economy," the BoC noted in the report.
With inflation still above target and interest rates holding firm, Canadian households should continue to brace for a slower-growth environment.
Tariff fears holding back economic momentum
Surprisingly, a bright spot in the survey came from exporters. Firms with international exposure were less concerned about worst-case trade scenarios than they were in the first quarter, and several respondents cited early signs of progress in global trade talks.
And while that outlook may have to be dialled back following the announcement of 35% tariffs on Canadian exports into American on August 1, according to the BoC, 95% of Canadian exports are dodging tariffs by maintaining compliance with CUMSA trade regulations.
However, demand remains weak among firms that have been impacted by tariffs, with particular caution around both investing and hiring.
Overall, the BoC notes that businesses’ expectations for short-term inflation have returned to levels reported at the end of 2024, with fewer firms planning to increase capital spending, and nearly one in five businesses putting their investment plans on hold due to elevated borrowing costs and uncertainty around consumer demand.
Labour pressures and wage growth easing
The survey also highlights a continued easing in labour market tightness. The share of businesses reporting labour shortages dropped for a second straight quarter, and wage growth expectations have cooled as a result.
In particular, the report notes how “the average expected wage increase among firms in the Business Outlook Survey is now near its pre-pandemic average.” For Canadian workers, that could mean slower salary growth, even as inflation remains sticky.
Employment plans have also softened. “Fewer firms than usual plan to increase their labour force over the next year,” the Bank wrote, noting that uncertainty about the economic outlook was a common theme among employers.
What this means for Canadians
While the easing of tariff concerns is a relief for some exporters, even though a trade deal wasn’t reached before August, the broader message is clear: Businesses remain cautious, and that’s likely to keep economic momentum stunted through the end of 2025.
At the time of the survey, many businesses were adjusting to a high-cost environment and did not expect significant policy changes in the near term. And while the survey was conducted before the BoC’s most recent rate announcement, we now know that it held its benchmark rate steady at 4.50% on July 30.
For Canadian consumers, this pause may signal that the Bank is waiting for more evidence of economic cooling before making any major moves. Wage growth could continue to soften, while prices of many goods are expected to remain high.
When it comes to consumer saving, Canadians may benefit from steady deposit rates, but borrowers, especially mortgage holders, might need to hold on a bit longer for any meaningful rate relief.
Sources
1. Bank of Canada: Business Outlook Survey—Second Quarter of 2025 (Jul 21, 2025)
2. Bank of Canada: Scenario assumptions (Jul 2025)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.