A pair of reports from the Bank of Canada pointed to declining business and consumer sentiment in the first quarter as the uncertainty over U.S. tariffs took their toll.
The central bank’s business outlook survey said Monday that 32 percent of firms are now planning with the assumption that a recession will occur in Canada over the coming year, up from 15 percent over the past two quarters.
“Uncertainty surrounding financial, economic and political conditions remains the top concerns for firms and rose sharply this quarter,” the report said.
A smaller proportion of businesses expected sales growth to improve over the coming year at 43 percent compared with 53 percent in the fourth quarter of 2024, the findings showed, while plans for investment in machine equipment declined.
Thirty-one percent of businesses surveyed said they expected investment in machine equipment to be higher over the next year compared with 48 percent in the previous quarter.
The proportion of businesses expected to increase their headcount over the next year also fell 32 percent compared with 45 percent in the fourth quarter of last year.
“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.
The business outlook survey also said firms no longer expect growth in their input prices to slow.
“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,” the report said.
“Near-term inflation expectations are higher than last quarter, with firms believing the inflationary impacts from tariffs will outweigh reduced pressures from weak demand.”
Meanwhile, the Canadian survey of consumer expectations said concerns about job security increased because of the trade conflict.
“This is especially true for those working in sectors that are highly dependent on trade between Canada and the United States,” the report said.
The report also said that for the first time since the first half of 2024, there was an increase in the share of consumers who said they are reducing or planning to reduce their overall spending.
The latest surveys were done before U.S. President Donald Trump’s so-called reciprocal tariff announcement last week that prompted increased fears of a global recession and a plunge on stock markets around the world.
The business outlook survey was done between Feb. 6 and 26, while the Canadian survey of consumer expectations was conducted between Jan. 29 and Feb. 19, with follow-up phone interviews between Feb. 20 and 25.
The Bank of Canada’s next interest rate decision and monetary policy report is set for April 16.
The central bank cut its key interest rate by a quarter of a percentage point to 2.75 percent last month. The summary of deliberations from that meeting suggested it may have held the rate steady if not for the substantial uncertainty around tariffs in the U.S.
