Canadian firms believe conditions are slightly better than at the start of the year, but they are unlikely to spur investment or hiring given the chilling effect of U.S. tariffs, a Bank of Canada survey showed Monday.
The Bank of Canada and economists are closely watching the quarterly business outlook survey to gauge what Canadian firms can expect in terms of inflation, sales and hiring.
Tariffs and trade tensions continue to weigh on the outlook for many companies, the study said, adding that while business sentiment continues to improve from lows seen in early 2025, it remains subdued.
The business outlook indicator, a summary of business activity, prices, costs and capacity, rose to -2.28 in the third quarter from -2.40 in the previous quarter.
The survey, conducted from Aug. 7 to Sept. 3, found that companies do not expect sales growth to strengthen next year as tariffs continue to dampen demand.
However, the balance of opinion regarding future sales has improved slightly.
The share of firms expecting a recession next year increased slightly to 33 percent from 28 percent in the second quarter. Concerns about the economic slowdown primarily offset improved business sentiment, the Bank of Canada said.
Firms will not invest additional capital to build capacity and many are pausing new investment while their hiring intentions remain subdued, the study said, citing the impact of tariffs.
The Bank of Canada released the research just days before it is due to announce its latest rate decision and release quarterly economic forecasts.
Money market rates show a nearly 77 percent chance of a 25 basis point rate cut.
Year-ahead inflation expectations for the third quarter will be around three percent, almost the same as the previous quarter, but companies have widely reported cost pressures.
Businesses continue to expect their input prices to rise at a faster rate over the next 12 months compared with the previous 12 months, it said, adding that wage growth continues to trend downward over the next 12 months.
A separate survey of consumer expectations from the central bank showed 64.1% of Canadians expect a recession within the next 12 months, down from 64.4% in the second quarter.
