Canadian businesses are feeling slightly more optimistic compared to earlier in the year, according to a recent survey by the Bank of Canada. However, they are hesitant to increase investments or hiring due to the negative impact of U.S. tariffs. The survey, which assesses factors such as inflation, sales, and hiring expectations, highlighted that tariffs and trade tensions continue to affect business sentiments.
Although there has been a slight improvement in overall business outlook from the previous quarter, many firms remain cautious due to ongoing uncertainties. The business outlook indicator, which summarizes business activity, prices, costs, and capacity, increased to -2.28 in the third quarter from -2.40 in the previous quarter.
Despite some improvement in future sales expectations, firms are not anticipating significant sales growth in the upcoming year due to the tariff-related challenges. Additionally, concerns about a potential recession have slightly increased, with 33% of firms expressing worries compared to 28% in the previous quarter.
The survey revealed that businesses are refraining from making additional investments in capacity expansion and are delaying new investments while keeping their hiring intentions low, largely due to the impact of tariffs. This cautious approach is reflected in the expectations for a 25-basis-point rate cut, with money market bets showing a high probability of such a move.
In terms of inflation expectations, businesses foresee around three percent inflation in the third quarter, with cost pressures being widely reported. Input prices are expected to rise at a faster rate in the next 12 months, although wage growth projections are on a downward trend.
Another survey conducted by the central bank on consumer expectations showed a slight decrease in the percentage of Canadians expecting a recession over the next 12 months, indicating a nuanced outlook among consumers.