The Bank of Canada released the results of its third-quarter 2025 Business Outlook Survey, which found that business sentiment remains subdued despite a gradual improvement from earlier in the year. The survey was conducted between August 7 and September 3, 2025, mostly before the announcement of the removal of certain Canadian counter-tariffs.

Firms continue to report weak expectations for both domestic and export sales. Ongoing trade tensions and tariffs are cited as major concerns affecting business outlooks. Many businesses say these factors have broad economic effects, including soft demand and increased costs.

The proportion of firms preparing for a possible recession has risen slightly from 28% to 33%, reflecting continued worries about trade-related impacts on the Canadian economy. Despite this, overall business sentiment has improved modestly since early 2025 but remains moderate.

Uncertainty about financial, economic, and political conditions is still considered the most pressing issue by businesses, though fewer firms mentioned it this quarter compared to previous ones. Cost pressures, slowing demand, and regulatory issues such as duties and tariffs also remain significant challenges.

Most firms do not plan to increase staffing levels over the next year due to soft demand and ongoing uncertainty related to trade tensions. The survey also found that few companies are experiencing capacity constraints or labor shortages; in fact, finding workers has become easier than a year ago.

Investment intentions remain muted. Close to half of surveyed firms are prioritizing routine maintenance over expansion projects. Businesses cite soft demand and tariff-related uncertainty as reasons for scaling back investment plans or delaying new projects.

In consultations with retailers conducted by Bank staff, some reported a slight improvement in consumer spending after weakness earlier in 2025. This uptick was attributed to lower interest rates and gas prices as well as more domestic tourism.

Exporters continue to face challenges despite most reporting their exports are not currently subject to tariffs. Those in steel and aluminum sectors affected by US tariffs reported particularly weak outlooks; while some aluminum exports have shifted toward Europe, exporters view this as an unsustainable long-term solution due to profitability concerns.

Hiring intentions remain low across most sectors. However, special consultations with aluminum and steel industry firms revealed that recent US tariff increases have led to significant layoffs.

Wage growth expectations continue to slow but at a less sharp rate than in previous quarters. Firms anticipate smaller wage adjustments over the next year as cost-of-living pressures ease alongside weaker demand.

Businesses expect input prices to rise faster over the coming year mainly because of tariffs and trade tensions but indicate that weak demand limits their ability to pass higher costs onto customers through increased selling prices.

One-year-ahead inflation expectations among businesses now sit around 3%, slightly above late-2024 levels but below peaks seen earlier this year. Tariffs remain a primary driver of these inflation expectations; however, many firms believe that soft demand will partially offset upward price pressures caused by tariffs.

According to the Bank of Canada’s methodology notes, these survey results reflect opinions expressed by respondents rather than official views of the central bank itself.