Results of the third-quarter 2025 survey | Vol. 22.3 | October 20, 2025
The Business Outlook Survey was conducted by in-person, video and phone interviews from August 7 to September 3, 2025. The large majority of interviews were conducted before the announcement of the removal of certain Canadian counter-tariffs. The Business Leaders’ Pulse is conducted online every month; the latest results are from July, August and September 2025. This quarter’s publication also includes results from Governing Council outreach as well as special consultations with businesses and industry organizations in trade-sensitive sectors.
Overview
- Firms’ outlooks and intentions remain subdued despite a gradual improvement in sentiment and a slight easing of perceived uncertainty.
- Expectations for growth in domestic and export sales remain soft due to concerns about the broad economic effects of trade tensions.
- Few firms reported binding capacity constraints or labour shortages, and most businesses do not expect to increase current staffing levels.
- Soft demand and uncertainty related to trade tensions persist in holding back investment intentions, with close to half of firms prioritizing routine maintenance over expansion.
- Businesses continue to expect cost increases due to tariffs and trade uncertainty. However, many said that weak demand is limiting their ability to pass these cost increases through to their selling prices.
- Firms’ one-year-ahead inflation expectations are below the peak reached earlier in the trade conflict and are now only slightly above late-2024 levels.
Despite a small improvement in sentiment, firms’ outlooks and intentions remain subdued
Tariffs and trade tensions continue to weigh on the outlooks of many firms. Business sentiment has continued to improve gradually from the lows seen in early 2025 but remains moderate (Chart 1).
Chart 1: Business sentiment is gradually recovering from recent lows
Meanwhile, the share of firms planning for a recession in Canada—for example, by tightening their budgets or pausing investments—has increased slightly, from 28% to 33%. This share remains above the low levels seen in 2024, likely reflecting ongoing concerns about the impacts of trade tensions.
These ongoing concerns of a recession are offsetting the continued gradual improvement in business sentiment, leaving firms’ outlooks and plans largely unchanged, on balance. The Business Outlook Survey (BOS) indicator—a summary measure of results from key questions in the BOS—remains below average (Chart 2). Measures of both business activity (including sales, investment and employment) and capacity continue to weigh negatively on the BOS indicator, reflecting ongoing soft demand and cautious planning.
Chart 2: Ongoing, widespread softness keeps the BOS indicator negative this quarter
Uncertainty surrounding financial, economic and political conditions remains the most pressing concern for firms, but fewer cited it this quarter than in previous quarters (Chart 3). Cost pressures, slowing demand, and taxes and regulations (including duties and tariffs on international trade) also continue to weigh on firms. Businesses often link their uncertainty to domestic economic growth, costs and international trade—underscoring that the trade conflict and its spillover effects are still top of mind.
Chart 3: Uncertainty remains the most pressing concern for firms
Firms continue to anticipate weak demand
Firms’ sales expectations remain weak. Businesses no longer expect sales growth to strengthen over the coming year as tariff-related impacts continue to hold back demand (Chart 4, blue bars). Firms attribute this anticipated weakness largely to broad spillover effects from the trade conflict, such as:
- weak spending by business customers on services (such as renovations as well as corporate travel and events) and capital goods
- low consumer spending or concerns that consumers could start to spend less
- weak outlooks in the housing sector
However, the balance of opinion on indicators of future sales (e.g., order books, advance bookings, sales inquiries) has improved marginally and now sits near zero (Chart 4, red line). In other words, the number of firms that reported their indicators have deteriorated is about the same as the number that said they have improved.
In consultations conducted by Bank staff, retailers echoed this slight improvement in demand: after weakness in early 2025, consumer spending has picked up, with sales outperforming retailers’ earlier worst-case expectations. These retailers attributed this result to factors such as lower interest rates and gas prices, more domestic tourism, and consumers adapting to higher uncertainty. Similarly, in the Bank’s surveys, more firms than last quarter reported that their customers’ Buy Canadian spending behaviour is boosting their sales volumes. However, this still represents a small share of firms.
Chart 4: Subdued sales outlooks continue
As in the Bank’s business surveys last quarter, most exporters this quarter reported that their exports are not currently subject to tariffs. Even so, expectations for growth in export sales remain muted. The balance of opinion on indicators of future export sales moved down from last quarter and sits below its historical average (Chart 5). Firms attribute this weakness largely to soft US and global demand, low energy prices, and hesitancy of US customers given ongoing trade frictions.
In special consultations conducted by Bank staff, Canadian exporters of steel and aluminum products currently facing sectoral US tariffs reported especially weak outlooks. Although some exports of primary aluminum have been redirected to Europe, these exporters view this strategy as an unsustainable alternative to US market access because of concerns about long-term profitability.
Chart 5: Outlooks for export sales remain soft despite few businesses facing tariffs
Plans to expand capacity are still on hold
Amid an environment of weak demand, most firms reported they have ample capacity, including physical capacity and labour. Further, the share of businesses that would have difficulty meeting an unexpected increase in demand remains below the historical average for the fourth consecutive quarter (Chart 6, yellow line). Few firms are struggling with supply chain disruptions or difficulties sourcing critical inputs. Businesses said they can find workers more easily now than a year ago, and the share of firms that reported binding labour shortages fell to its lowest level since 2020 (Chart 6, green line).
Chart 6: Firms continue to report few capacity constraints and labour shortages
Firms’ investment intentions remain muted this quarter, with the balance of opinion still well below its long-term average. Many businesses are scaling back their investment plans or putting new investments on hold because of soft demand and uncertainty related to trade tensions. More firms than usual continue to focus their investments on routine maintenance rather than expanding capacity. Of the businesses that said their recent indicators of future sales had deteriorated, most also reported weak investment plans (Chart 7, red bars). Meanwhile, of the firms that said their indicators of future sales were either unchanged or improved, most are planning either stable or increased investment spending over the next 12 months (Chart 7, yellow and green bars).
Uncertainty related to tariffs and trade tensions continues to weigh on investment plans, though to a slightly lesser extent than last quarter. The realized impacts from past and current trade tensions—including softer demand and higher costs of machinery and equipment imported from the United States—are leading more firms to put their plans on hold. During Governing Council outreach activities in Saskatchewan, businesses noted that increased Chinese tariffs on canola and other agricultural products are weighing on investment plans in the agricultural sector.
Chart 7: Firms with weak sales outlooks are planning for lower investment
Hiring intentions remain subdued. Most firms do not plan to increase the size of their workforce over the next 12 months (Chart 8). Soft demand, ongoing tariff uncertainty and minimal capacity pressures mean few businesses need to add staff. The share of firms planning outright staff reductions remains similar to that in previous quarters. However, special consultations this quarter with firms in the aluminum and steel industry revealed that the impacts of US tariff increases are leading to significant layoffs.
Chart 8: Most businesses do not plan to hire new employees
Alongside subdued hiring intentions, expectations for wage growth over the next 12 months continue to trend lower (Chart 9, green and yellow lines). Wage growth expectations are still slowing but less sharply than in previous quarters (Chart 9, blue bars) and are near levels seen before the COVID‑19 pandemic. As cost-of-living adjustments ease and demand weakens, firms anticipate their wage adjustments will be lower.
Chart 9: Wage growth expectations continue to trend lower
Weak demand is constraining selling price expectations
Firms continue to widely report cost pressures. Businesses still expect their input prices to increase at a faster pace over the next 12 months compared with the past 12 months (Chart 10, yellow line). Tariffs and trade tensions remain the primary source of upward pressure on expected increases in input prices, though these pressures remain moderate. Weakness in demand persists in limiting firms’ ability to pass along these costs to customers. As a result, many businesses expect their selling prices to increase over the next 12 months at a similar rate as over the past 12 months (Chart 10, blue line). Fewer firms than last quarter plan to raise their selling prices in response to the lingering additional costs associated with tariffs and trade tensions, although a slightly larger share of those businesses plan significant price increases (Chart 11). Firms that attribute cost increases to tariffs and trade tensions frequently cited higher steel and aluminum prices affecting imported parts and equipment.
Chart 10: Firms still expect input price growth to increase and selling price growth to remain stable
Chart 11: Slightly fewer firms than last quarter have increased their selling prices because of trade tensions
One-year-ahead inflation expectations now sit around 3% after rising above that level through the first quarter of this year and easing back toward it in the second quarter (Chart 12). Inflation expectations for longer horizons, meanwhile, remain around 2½%. Tariffs are still the primary driver of inflation expectations. Firms continue to expect direct upward pressure on inflation from tariffs to be partially offset by soft demand.
Chart 12: Firms’ short-term inflation expectations are lower than their peak reached in early 2025
Survey results report opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.
The Bank of Canada’s Business Outlook Survey is conducted by the Bank’s regional office staff through interviews with the senior management of about 100 firms selected to reflect the composition of the gross domestic product of Canada’s business sector. Additional information on the survey and its content is available on the Bank of Canada’s website.
The Bank of Canada’s Business Leaders’ Pulse is a survey of 700 to 1,000 Canadian business leaders who respond to one of three short online questionnaires each month. For more information on the Business Leaders’ Pulse, see T. Chernis, C. D’Souza, K. MacLean, T. Reader, J. Slive and F. Suvankulov, “The Business Leaders’ Pulse—An Online Business Survey,” Bank of Canada Staff Discussion Paper No. 2022-14 (June 2022).