Firms stayed cautious in Q3, with tariffs and recession fears stalling growth
Canadian business sentiment remained subdued in the third quarter of 2025, as persistent trade tensions and tariff uncertainty continued to cast a long shadow over investment and hiring plans, according to the Bank of Canada’s latest Business Outlook Survey.
“Expectations for growth in domestic and export sales remained soft due to concerns about the broad economic effects of trade tensions,” the Bank of Canada said in its report.
The survey, conducted mainly before the removal of certain Canadian counter-tariffs, found that firms’ outlooks and intentions showed only a gradual improvement, with the BOS indicator still well below average levels.
Most businesses reported that soft demand and ongoing uncertainty were holding back investment, with nearly half prioritizing routine maintenance over expansion.
“Businesses continue to expect cost increases due to tariffs and trade uncertainty. However, many said that weak demand is limiting their ability to pass these cost increases through to their selling prices,” the Bank of Canada said.
Uncertainty remained the most pressing concern for firms, though fewer cited it this quarter compared to previous periods.
Cost pressures, slowing demand, and taxes and regulations—including duties and tariffs—rounded out the top concerns.
“The trade conflict and its spillover effects are still top of mind,” the survey noted.
As Donald Trump’s trade tensions continue to unsettle markets, Canada’s banking sector stands firm. Shilpa Mishra of MNP Corporate Finance highlighted solid credit portfolios and ongoing consolidation as signs of strength. https://t.co/GpMzIbfAdr
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 17, 2025
Sales expectations stayed weak, with many firms attributing anticipated softness to spillover effects from the trade conflict, such as reduced spending by business customers and a weak housing sector.
However, some retailers reported a slight improvement in consumer demand, citing lower interest rates and gas prices, more domestic tourism, and a resilient “Buy Canadian” trend.
“After weakness in early 2025, consumer spending has picked up, with sales outperforming retailers’ earlier worst-case expectations,” the Bank of Canada said.
Exporters, particularly in the steel and aluminum sectors, continued to report especially weak outlooks.
“Although some exports of primary aluminum have been redirected to Europe, these exporters view this strategy as an unsustainable alternative to US market access because of concerns about long-term profitability,” the survey found.
Labour market pressures eased, with few firms reporting binding shortages and most not planning to increase staffing levels.
Wage growth expectations continued to slow, nearing pre-pandemic levels.
“As cost-of-living adjustments ease and demand weakens, firms anticipate their wage adjustments will be lower,” the Bank of Canada said.
One-year-ahead inflation expectations hovered around 3%, down from earlier peaks, with tariffs still the primary driver. Yet, weak demand was expected to offset some upward pressure on prices.
The share of firms preparing for a recession ticked up to 33%, up from 28% last quarter, reflecting ongoing concerns about the broader economic impacts of trade tensions.
“These ongoing concerns of a recession are offsetting the continued gradual improvement in business sentiment, leaving firms’ outlooks and plans largely unchanged,” the Bank of Canada said.
