The Bank of Canada released its second-quarter 2025 Business Outlook Survey, alongside updates from the monthly Business Leaders’ Pulse, showing that tariffs and trade-related uncertainty continue to shape firms’ outlooks even as worst-case scenarios are seen as less likely than in the previous quarter. Sales expectations remain pessimistic and plans for hiring and investment are cautious, while short-term inflation expectations have moved back down to levels reported at the end of 2024. Some tariff-related cost and sales impacts anticipated in 2025Q1 have materialized and are expected to persist, but expectations for future adverse effects have moderated, with the share of firms expecting higher tariff-related costs falling from around two-thirds to about one-third. Business sentiment has rebounded from the March and April 2025 lows and the share of firms planning for a Canadian recession declined to 28% from 32%, though weak demand was described as broad-based. Exporters’ outlooks improved because most were not currently subject to tariffs, but consultations indicated continued weakness among sectors facing US tariffs, including steel and aluminum manufacturers and firms in the auto sector. Capacity and labour shortages remained below historical averages, investment spending was focused on routine maintenance rather than expansion and most firms planned to keep employment steady. Roughly half of firms reported already facing additional tariff-related costs, input price growth was expected to accelerate over the next 12 months and competitive pressures were limiting pass-through, with many firms absorbing costs through reduced margins. Survey interviews were conducted between May 8 and 28, 2025, and the publication also draws on Business Leaders’ Pulse results from April to June 2025, Governing Council outreach and special consultations with businesses and industry organizations in trade-sensitive sectors.
Bank of Canada 2025-07-21
Bank of Canada reports tariffs still weighing on firms in second-quarter 2025 Business Outlook Survey as inflation expectations ease
The Bank of Canada's Q2 2025 Business Outlook Survey shows tariffs and trade uncertainty still affect firms' outlooks, though worst-case scenarios are less likely. Sales expectations remain pessimistic, with cautious hiring and investment plans, while short-term inflation expectations have decreased to late 2024 levels. Business sentiment has improved, with fewer firms anticipating a recession, but sectors facing US tariffs, like steel, aluminum, and auto, continue to experience weakness.