The Bank of Canada has recently published its latest business outlook survey, highlighting the stabilization of the Canadian economy, albeit against the backdrop of increasing concerns related to U.S. trade policies under President Donald Trump. The findings, released on January 20, paint a mixed picture of Canadian businesses' sentiment, reflecting both optimism about growth and apprehension about potential tariffs affecting their operations.
The survey indicates improvement as the business outlook indicator rose to -1.18, the highest level recorded since early 2023. This is up from -2.3 previously, marking the third consecutive quarterly enhancement and signaling what the bank describes as “emerging optimism” among firms. The increase is attributed to lower interest rates and easing inflation, which have encouraged Canadian businesses to resume previous investment plans.
Many businesses report positive expectations for sales growth, with improved demand allowing for subsequent expansion. Firms are capitalizing on lower financing costs, with the survey indicating over half of the respondents anticipate rising sales activity over the next year. Kacee Vasudeva, CEO of the auto parts manufacturer Ultra-Form Manufacturing, voiced concerns over future job losses if tariffs are imposed, stating, "I'm concerned. We just got an order this week for $1 million from the U.S. We didn't count the duty in there yet."
Despite optimism within Canada, concerns about U.S. trade measures are casting a shadow over future growth. The survey noted 40% of respondents fearing negative consequences arising from the Trump administration's policies. Even as optimism grows for the domestic economy, uncertainty around U.S.-Canada trade relations remains, particularly as Trump’s campaign promises to impose significant tariffs on Canadian imports continue to circulate.
The Bank of Canada’s survey also highlighted shifts in consumer sentiment. A separate survey exhibited Canadians becoming increasingly apprehensive about economic stability, with nearly half anticipating a recession within the next year. Despite these fears, consumers indicated they expect to increase spending, indicating confidence amid rising goods prices and high housing costs.
Further illustrating the precarious yet hopeful nature of the current Canadian economic feature, firms anticipate higher costs as they prepare for the potential impacts of U.S. tariffs. Firms are also adjusting their investment strategies, albeit cautiously, as they try to gauge the longer-term impacts of Trump’s economic policies. Approximately 15% of businesses expect domestic and export sales to decline amid these uncertainties.
The survey carried out during November 7-27, preceding the recent interest rate cut of 50 basis points by the Bank of Canada on December 11, reflects the shifting dynamics faced by Canadian businesses as they navigate both local and international markets. Despite acknowledging the uncertainty linked to U.S. trade policies, firms are encouraged by recent interest rate cuts, which play a supportive role in their decision-making processes.
Organizations across sectors also showed diverse responses to these uncertain conditions. Perrin Beatty, former president and CEO of the Canadian Chamber of Commerce, indicated potential tariffs could be detrimental, hinting at the gravity of the situation, “We could very well find ourselves pushed to recession quite early this year.” His insights echo wider sentiments among business leaders contingent upon the U.S. trade environment's evolution.
Canadian businesses, particularly those heavily integrated with U.S. supply chains, are adapting to these pressures. Many are reassessing their operational strategies to navigate the challenges posed by tariffs and increased input costs. Companies like Ultra-Form Manufacturing may need to recalibrate their business models to mitigate the impact of anticipated tariffs and reduced consumer confidence stemming from the heightened economic uncertainties.
Nevertheless, the Bank of Canada’s economic outlook points toward encouraging trends, with businesses intending to invest and expand operations, albeit within cautious confines. While fears of tariffs loom large, strengthening domestic sales and the potential of economic recovery suggest resilience within the Canadian economy.
Looking forward, the Bank of Canada will announce its next key interest rate decision on January 29, with anticipations of rate reductions as policymakers seek to address inflation trends and stabilize growth. With the current benchmark rate at 3.25%, the economic climate remains fluid, necessitating close monitoring of both local and international factors as they interplay to shape the future of Canadian businesses.