The latest results from the Bank of Canada’s Business Outlook Survey and Business Leaders’ Pulse show that confidence in the Canadian economy remains fragile, with many firms bracing for slower growth and tighter conditions. Inflationary pressures may be easing, but concerns about demand, trade uncertainty, and financing costs continue to weigh heavily on business sentiment.
These surveys reveal that a significant share of companies now plan with the expectation of an economic downturn, reflecting cautious investment and hiring strategies. At the same time, optimism about long-term prospects has not disappeared, creating a mixed picture of hesitation in the short term and guarded hope for the future.
By examining the key findings of the Business Outlook Survey alongside emerging insights from the Business Leaders’ Pulse, it becomes clear that Canadian businesses are navigating a delicate balance between managing immediate risks and preparing for recovery. This tension sets the stage for important discussions on how leaders can adapt their strategies in the face of uncertainty.
Key Findings from the Business Outlook Survey and Business Leaders’ Pulse
Recent surveys show that Canadian firms face subdued business conditions, with weak demand, higher costs, and uncertainty about future growth. Business leaders highlight near-term challenges while also expressing concern about structural issues that could affect competitiveness in the longer term.
Overview of Survey Methodology
The Business Outlook Survey (BOS), conducted by the Bank of Canada, gathers input from senior managers across industries. It focuses on sales expectations, investment intentions, hiring plans, and inflation pressures. The Business Leaders’ Pulse, a complementary monthly survey, provides more frequent updates on sentiment and risks.
Both surveys rely on qualitative interviews rather than purely quantitative data. Executives provide forward-looking insights into business conditions, which helps policymakers gauge confidence levels and potential economic shifts.
The BOS typically includes firms of varying sizes and sectors, ensuring broad representation of the Canadian economy. The Pulse survey, in contrast, offers a faster read on how recent developments—such as policy changes or global events—affect decision-making.
Together, these surveys serve as key tools for assessing real-time business sentiment. They highlight not only current conditions but also expectations that can influence monetary policy and investment trends.
Main Areas of Concern for Canadian Business Leaders
Canadian firms report weak sales outlooks due to slowing domestic demand and cautious consumer spending. Many businesses point to rising borrowing costs and tighter credit conditions as constraints on growth.
A significant share of leaders also cite labour shortages, especially in skilled trades and technology roles. Recruitment difficulties have persisted despite signs of an easing job market.
Cost pressures remain a top concern. Input costs, wages, and regulatory compliance expenses continue to weigh on margins. Firms in manufacturing and construction have been particularly affected.
External risks also feature prominently. Executives note uncertainty tied to U.S. trade policies, global supply chain adjustments, and geopolitical instability. According to the Bank of Canada Business Outlook Survey, these factors contribute to cautious investment planning.
Short-Term Economic Projections
In the near term, most firms expect subdued growth. The Business Outlook Survey—Second Quarter of 2025 indicates that sales projections remain weak, with many companies anticipating flat or declining revenues.
Hiring plans have softened, though not collapsed. Some firms still intend to expand their workforce, but wage growth expectations have moderated compared to late 2024.
Investment intentions are mixed. While certain exporters remain optimistic due to a weaker Canadian dollar, domestic-focused firms are delaying capital projects. Higher financing costs are a central factor in these decisions.
Inflation expectations have eased slightly but remain above the Bank of Canada’s target range. Businesses continue to anticipate elevated input costs, though fewer expect sharp price increases compared to the previous year.
Long-Term Implications for the Canadian Economy
Longer-term challenges extend beyond immediate demand weakness. Structural issues such as low productivity growth and lagging business investment pose risks to Canada’s competitiveness.
Executives warn that persistent labour shortages, especially in high-skill sectors, could limit innovation and expansion. Without improvements in training and immigration policy, firms may struggle to meet future demand.
Trade diversification also emerges as a strategic concern. Heavy reliance on the U.S. market leaves Canadian exporters vulnerable to policy shifts and tariff risks. The Business Leaders’ Pulse highlights growing interest in exploring alternative markets, though progress remains slow.
Environmental and regulatory pressures will shape long-term planning. Firms expect stricter climate policies and evolving consumer preferences to require significant adaptation. Those unable to invest in sustainable practices may face higher costs and reduced competitiveness.
Persistent uncertainty creates a cautious outlook. While some leaders see opportunities in digital transformation and green technologies, many remain reluctant to commit resources until economic conditions stabilise.
Impacts and Strategic Responses
Canadian businesses face persistent uncertainty from tariffs, global demand shifts, and domestic cost pressures. Firms are adjusting investment, hiring, and pricing strategies as they respond to weaker growth expectations and sector-specific risks.
Effects on Business Investment and Hiring
The Bank of Canada’s Business Outlook Survey shows that firms remain cautious with major capital projects. Many companies delay expansion plans due to concerns about demand, financing costs, and trade-related risks. This restraint reduces overall investment momentum in the economy.
Hiring intentions have also softened. While labour shortages remain in some industries, businesses report slower recruitment efforts as they anticipate weaker sales growth. Wage pressures are easing, but firms still face difficulty filling specialized roles.
Some firms are focusing on productivity improvements rather than workforce expansion. Investments in automation and digital tools are becoming more common, reflecting a shift from labour-driven growth to efficiency-driven strategies.
Sector-Specific Challenges
Manufacturing and export-oriented industries face the strongest headwinds. Tariff uncertainty and weaker global demand weigh heavily on sales forecasts, forcing many firms to scale back production plans. According to the Business Outlook Survey—Second Quarter of 2025, companies in these sectors continue to report reduced confidence in future orders.
The energy sector remains under pressure from fluctuating commodity prices and regulatory uncertainty. Firms in this space have slowed investment in new projects, prioritizing cost control and operational efficiency instead.
In contrast, service industries such as technology and professional services show more resilience. Demand for digital transformation and consulting remains steady, though firms remain alert to potential slowdowns in client spending. Retail and consumer-facing businesses are adapting to cautious household spending, often by adjusting pricing strategies or reducing inventory levels.
Recommended Strategies for Canadian Businesses
To navigate uncertainty, firms are adopting a mix of cost management and selective investment. Many are focusing on strengthening cash flow, diversifying supply chains, and improving operational resilience.
Businesses are also exploring sector-specific strategies. Exporters are seeking new markets to reduce reliance on the United States, while retailers are using data analytics to better match consumer demand. Energy firms are investing in efficiency upgrades to remain competitive despite volatile pricing.
Collaboration with policymakers and industry groups is another priority. Initiatives that support workforce training, innovation, and access to financing can help companies adapt more effectively. Firms that balance caution with targeted investments are better positioned to manage ongoing economic headwinds.
