Canadian businesses are feeling slightly more optimistic compared to earlier this year, according to a recent survey by the Bank of Canada. However, the survey indicates that these businesses are hesitant to increase investments or hiring due to the negative impact of U.S. tariffs.
The quarterly business outlook survey, which provides insights into Canadian firms’ expectations regarding inflation, sales, and hiring, highlighted that tariffs and trade tensions are still casting a shadow over many companies’ outlooks. Although business sentiment has improved from the lows experienced in early 2025, it remains at a moderate level.
The overall 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. Despite this slight improvement, firms do not anticipate a significant boost in sales growth over the next year due to the ongoing impact of tariffs on demand.
Although there has been a marginal improvement in the balance of opinion on future sales, the survey revealed that 33% of firms expect a recession in the next year, up from 28% in the second quarter. Concerns about a potential downturn have been a key factor in offsetting the positive shift in business sentiment, as many firms are holding off on additional investments and capital expenditures while keeping hiring intentions subdued, largely due to the effects of tariffs.
The Bank of Canada conducted the survey ahead of its upcoming rate decision announcement and release of quarterly economic projections. Market expectations suggest a high probability of a 25-basis-point rate cut. Inflation expectations for the next year remain around three percent, with businesses reporting significant cost pressures. While firms anticipate a faster increase in input prices over the next 12 months compared to the previous year, wage growth expectations are on a downward trend.
A separate survey on consumer expectations conducted by the central bank revealed that 64.1% of Canadians anticipate a recession within the next 12 months, slightly down from the previous quarter.