Bank of Canada Survey Shows Business Sentiment Weakens as Tariff Worries Ease

The Bank of Canada’s second-quarter Business Outlook Survey shows sentiment deteriorating despite a modest easing in tariff fears. The composite Business Sentiment Index fell to –2.42 from a revised –2.12 in the first quarter, underscoring continued softness in demand. While tariffs and trade uncertainty remain a drag, fewer export-oriented firms now anticipate the worst-case tariff scenarios they feared three months ago. Near-term sales prospects weakened sharply: the balance of opinion on future sales slipped to –6 from +22. Roughly one-quarter of companies reported a decline in sales over the past 12 months, down slightly from 28% in the prior survey. Most businesses plan to keep staffing unchanged and limit capital spending to routine maintenance, with 43% expecting lower labour costs over the coming year and only 9% anticipating higher costs. Recession worries have eased but remain elevated. Twenty-eight percent of surveyed firms expect Canada to fall into recession within a year, compared with 32% in the first quarter. A separate consumer survey found 64.5% of households foresee a downturn next year, down from 66.5%. Inflation expectations remain sticky. Five-year consumer inflation expectations edged up to 3.45% from 3.39%, and 23% of firms still see inflation running above 3% over the next two years, unchanged from the previous quarter. The findings come ahead of the Bank’s next policy decision, where officials will weigh persistent price pressures against signs of flagging growth.