The Bank of Canada's latest Business Outlook Survey highlights a decline in business sentiment in the first quarter of 2025. The survey, which included in-person, video, and phone interviews conducted from February 6 to 26, indicates that uncertainty has risen significantly due to trade conflicts with the United States.

A primary concern is the pervasive uncertainty surrounding financial, economic, and political conditions. Within this context, 32% of firms are planning for a potential recession in Canada within the next year, compared to 15% in the prior two quarters. Exporters, in particular, express a sharp decline in sentiment due to ongoing trade conflicts and associated uncertainties.

Business leaders are delaying key decisions on investment and hiring, facing challenges from expected increases in costs if tariffs are implemented. "Firms no longer expect growth in their input prices to slow," the survey notes, adding that two-thirds of businesses foresee higher costs if widespread tariffs are imposed, which would lead many to increase their selling prices.

Plans to expand capacity are largely on hold as firms report sufficient capacity to meet subdued demand. Many businesses have postponed or scaled back investments due to high uncertainty and low demand, particularly among exporting manufacturers who have adjusted their expectations for 2025 in light of US tariffs risks.

Employment intentions are at a historical low, with few firms planning to hire in the coming year. The soft business environment and tariff uncertainties mean most businesses do not anticipate needing to expand their workforce.

The survey also reflects how tariffs are pressing upward on price expectations. Businesses anticipate higher input costs stemming from tariff threats, depreciation of the Canadian dollar, and shifts in supplier strategies. Though only a minority of firms have directly factored tariffs into their forecasts, many expect broad impacts on their operations if widespread tariffs are realized.

Overall, the survey captures the growing concerns among Canadian businesses about trade tensions that weigh heavily on future sales, investment, and growth prospects.