Bank of Canada's survey shows rising inflation expectations and falling consumer spending plans
Business and consumer sentiment weakened sharply in the first quarter of 2025, according to two Bank of Canada surveys that were conducted before the most recent US tariff announcement by US President Donald Trump, as reported by The Canadian Press.
In the Business Outlook Survey, 32 percent of firms reported planning with the expectation that Canada will enter a recession within the next year. This marked a significant rise from 15 percent in the previous two quarters.
The survey noted, “uncertainty surrounding financial, economic and political conditions remains the top concerns for firms and rose sharply this quarter.”
The same report indicated a decline in confidence across investment, sales, and hiring.
Only 43 percent of businesses expected sales growth in the year ahead, down from 53 percent in the fourth quarter of 2024.
Investment expectations also declined, with 31 percent of businesses planning to increase spending on machinery and equipment, compared with 48 percent in the previous quarter.
Meanwhile, hiring plans dropped, with 32 percent of firms expecting to grow their workforce, down from 45 percent.
“In the current economic environment, many businesses are delaying important decisions, such as those related to investment and hiring, until they have a clearer outlook,” the report said.
BMO senior economist Shelly Kaushik noted that although the tariffs had not yet been enacted during the survey period, some firms had already started adjusting their plans.
“Tariffs dominated business and consumer sentiment in the first quarter, with plenty of uncertainty about whether they would be levied, at what rate, and for how long,” Kaushik wrote.
“Given that uncertainty remains and tariffs are now in place, we expect weakness to persist in the coming quarters.”
Businesses surveyed no longer expected input cost growth to ease.
The report found that “two-thirds of businesses believe that their costs would be pushed higher if widespread tariffs are implemented. As a consequence, many firms would increase their selling prices.”
It also stated, “near-term inflation expectations are higher than last quarter, with firms believing the inflationary impacts from tariffs will outweigh reduced pressures from weak demand.”
The Canadian Survey of Consumer Expectations showed that job security concerns increased due to the trade conflict.
According to the report, “this is especially true for those working in sectors that are highly dependent on trade between Canada and the United States.”
The share of consumers reducing or planning to reduce overall spending also increased. The survey noted this was the first such increase since the first half of 2024.
The Bank of Canada had already lowered its key interest rate to 2.75 percent last month. The summary of deliberations from that decision indicated that the rate might have remained unchanged if not for the “substantial uncertainty around tariffs in the US.”
The Bank’s next interest rate decision and monetary policy report is scheduled for release on April 16.
