Business confidence still weak as tariffs hold back investment: BoC

OTTAWA – Some economists say the Bank of Canada is more likely to cut its benchmark interest rate next week after a pair of surveys from the central bank showed U.S. tariffs are still looming large over businesses and consumers.

The Bank of Canada’s quarterly business outlook survey released Monday shows tariffs and lingering questions about the trade dispute are holding many firms back from investing in their operations and expanding payrolls.

The central bank summarizes answers from its survey into a single indicator of business confidence and sales expectations. This measure improved marginally from the second quarter of the year – when the U.S. tariff campaign took full force – but was still well below historical averages.

Uncertainty remains the top concern cited among Canadian businesses, though relatively fewer are reporting worries about financial, economic and political conditions from the previous quarter. Cost pressures, slowing demand and taxes and regulations round out the top four concerns pressing businesses in the third quarter.

The business outlook survey was largely conducted in August and early September and mostly captures firms’ sentiments before Canada dropped the bulk of its counter-tariffs on U.S. imports.

Firms are spending more on routine maintenance rather than growing their businesses, the survey reported.

Most exporters report their goods are still entering the U.S. tariff-free, but firms in the steel and aluminum industries are expressing doubt that overseas markets can offset the hit from higher duties in the U.S. market.

“Although some exports of primary aluminum have been redirected to Europe, these exporters view this strategy as an unsustainable alternative to U.S. market access because of concerns about long-term profitability,” the business outlook survey said.

Fewer firms are planning price hikes related to tariffs compared to the second quarter, the business survey said, though the share of those planning to significantly raise prices has grown. Businesses raising their prices in response to the trade disruption often cited steel and aluminum inputs as the pain point.

Business in Saskatchewan also told the Bank of Canada that Chinese tariffs on canola and other agricultural products are weighing on their investment plans.

The survey showed nearly a third of businesses are now expecting a recession to hit Canada, up five percentage points from the last survey.

The Bank of Canada also released its related quarter survey of consumers on Monday showing tariffs are still weighing on Canadians’ finances.

That report showed two-thirds of Canadians are expecting a recession – “a much larger share than before the (trade) conflict began” – though most households feel their own financial health has improved from the previous quarter.

Businesses were reporting stronger consumer spending patterns compared to sharp lows at the beginning of the year. Lower interest rates from the Bank of Canada, cheaper gas prices and still-strong “Buy Canadian” demand was helping to offset lower sales from economic uncertainty, that survey reported.

The Bank of Canada’s overall consumer indicator improved in the third quarter but, like the measure for businesses, remains well below historical averages.

Deteriorating confidence in the labour market was dragging down this indicator.

Public sector workers reported a lower probability of leaving or finding a new job, which the report said could be linked to the federal government’s cost-cutting review.

The surveys come ahead of the Bank of Canada’s next interest rate decision set for Oct. 29.

The central bank trimmed its benchmark interest rate by 25 basis points, or a quarter of a percentage point, to 2.5 per cent at its most recent decision in September.

CIBC senior economist Andrew Grantham said in a note to clients Monday that the pair of surveys continue to “paint a downbeat picture of the economy” despite marginal improvements in sentiment.

“And with the surveys also suggesting that inflation expectations are relatively well contained, today’s data provides further support for another (quarter-point) rate cut from the Bank of Canada next week,” Grantham said.

BMO senior economist Shelly Kaushik said in a note that the surveys show risks from the trade dispute are still tilted toward a steeper economic hit, particularly for the labour market.

She said the Bank of Canada will pay close attention to Tuesday’s inflation report for September before locking in its rate decision, but she agreed with Grantham that the odds for a cut are higher after the surveys showed softness in business and consumer sentiment.

Financial market odds of a quarter-point cut next Wednesday rose to roughly 76 per cent on Monday, up from around 64 per cent at the end of last week, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Oct. 20, 2025.