Canadian business and consumer confidence is still under pressure, but the good news, according to the Bank of Canada, is that the worst fears have not materialized.
In twin reports released Monday, the Bank said that while tariffs and trade tensions are still weighing on the economy, some of the earlier panic has faded. Businesses aren’t as worried as they were last quarter, and while consumers remain uneasy, most haven’t started pulling back across the board.
Business sentiment stabilizes but remains subdued
The second-quarter Business Outlook Survey found that confidence has improved slightly since the sharp declines seen in March and April. Just one-third of businesses now expect higher tariff-related costs, down from about two-thirds last quarter. And roughly 28% of firms are still bracing for a recession, although that’s a modest improvement from 32% in the previous survey.
“The negative effects on costs and sales that most businesses predicted last quarter have materialized, and firms expect them to persist,” the report said. “At the same time, firms have moderated their expectations for negative impacts.”
The survey also found that sales expectations remain weak, especially among firms tied to capital goods, consumer services and housing. Meanwhile, exporters affected by new tariffs on steel, aluminum and autos continue to report subdued outlooks, although many other exporters say they are not directly affected.
Still, “Uncertainty continues to drive cautiousness in outlooks for hiring and investment,” the Bank said. Many firms are limiting investment to routine maintenance and are planning to keep staffing levels unchanged in the year ahead.
Consumers remain wary of recession
The Bank’s Canadian Survey of Consumer Expectations painted a similarly cautious picture. The Bank’s new CSCE indicator, which tracks consumer sentiment across job security, spending and financial health, declined for the second straight quarter.
“About two-thirds of consumers continue to expect the Canadian economy to fall into a recession over the next 12 months,” the Bank reported.
Although concerns about job loss remain elevated, they have eased slightly from earlier in the year. Labour market expectations held relatively steady in the second quarter, and recent employment reports have come in stronger than expected.
Still, consumers are holding back on discretionary spending and shifting their preferences, the Bank noted.
“More than half of consumers reported that they plan to reduce their spending on U.S. goods and vacations in the United States,” the report noted, adding that many are prioritizing Canadian goods when price allows.
On the topic of inflation, expectations remain elevated for big-ticket items like vehicles, while expectations for price increases in essentials like food, gas and rent have softened.
A growing number of consumers also said they believe tariffs are the most important factor affecting the Bank of Canada’s ability to control inflation.
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Last modified: July 21, 2025