Bank of Canada says business sentiment has improved but companies still cautious amid US tariffs

Canadian companies think conditions are slightly better than earlier this year, but they are unlikely to boost investment or hiring given the waning impact of U.S. tariffs, a Bank of Canada survey showed on Monday.

The quarterly business outlook survey is closely watched by the BOC and economists to assess what Canadian companies expect in terms of inflation, sales and hiring.

The survey said tariffs and trade tensions are weighing on the outlook for many companies, although business sentiment continues to improve from the lows seen in early 2025, but remains moderate.

The Business Outlook indicator, a summary of business activity, prices and costs and capacity, increased from -2.40 in the previous quarter to -2.28 in the third quarter.

The survey, conducted between August 7 and September 3, said companies do not expect strong sales growth in the coming year, as tariffs continue to dampen demand.

That said, the balance of opinion on future sales has improved marginally.

The share of companies expecting a recession next year rose slightly to 33 percent from 28 percent in the second quarter. The BOC said concerns over a recession were mainly responsible for dampening the improvement in business sentiment.

The survey cites the impact of tariffs as companies will not invest additional capital to build capacity and many are holding back new investments, while their hiring intentions remain weak.

The survey was released days before the BOC is scheduled to announce its latest decision on rates and release its quarterly economic estimates.

Money market bets indicate a roughly 77 percent chance of a 25-basis-point rate cut.

Inflation expectations for the third quarter a year ahead are around three percent, about the same as last quarter, but companies are widely reporting cost pressures.

Businesses still expect their input prices to rise at a faster pace over the next 12 months than in the past 12 months, it said, adding that wage growth will continue to decline over the next 12 months.

A separate survey from the central bank on consumer expectations showed that 64.1 per cent of Canadians expect a recession in the next 12 months, down from 64.4 per cent in the second quarter.