Here’s a survey that’s half good news, half outdated-on-arrival.
The Bank of Canada’s Q1 Business Outlook Survey landed this morning and the headline is that business sentiment has recovered to roughly where it sat before Trump’s trade war kicked off. Fewer firms are worried about tariffs, sales outlooks are up for a third straight quarter, investment intentions are the strongest since trade tensions began, and hiring intentions are normalizing.
The share of firms planning or budgeting for a recession over the next 12 months collapsed from 22% to 9% — the lowest since the question started being asked in 2023. That’s a notable move.
The catch: the bulk of the interviews wrapped up on February 25, before the war in the Middle East started. So the BoC did what any good central bank does when its flagship survey gets overtaken by events — it went back and made follow-up calls to 20 of the most exposed firms between March 18 and 27.
From that, input costs are already moving for anyone touching fuel, fertilizer, freight or aluminum. Farmers are mostly fine for this planting season because they’ve already bought fertilizer, but that’s a timing quirk, not a reprieve. Transportation firms say they can pass through higher fuel costs via contract clauses. Most everyone else is staring at margin compression because demand is too soft, consumers are too tapped out, and competition is too stiff to push prices through cleanly.
Inflation expectations ticked up at the near-term horizon — driven entirely by firms surveyed in March after the war started. Longer-horizon expectations sit between 2.5% and 3%, broadly unchanged. So it’s an energy shock story, not a reset of the inflation regime. At least not yet.
A few other nuggets worth flagging:
Wage growth expectations are steady at around 3.5%, and firms expect wages to grow slower over the next 12 months than they did over the past 12. That’s the kind of detail the Bank of Canada actually cares about.
On USMCA, which gets its first joint review on July 1, most firms see it as a risk rather than something actively shaping near-term plans. But most also expect the review to leave Canadian exporters facing higher average tariff rates than today. Not exactly a vote of confidence.
Trade diversification away from the US remains mostly theoretical. A handful of firms are dipping toes into non-US markets, but the rest say it’s either not worth the effort or the transportation costs don’t work.
The bottom line is that this is a survey the BOC would have loved in isolation — sentiment recovering, investment picking up, recession fears fading, inflation expectations anchored. Unfortunately, everything changed at the end of February.
Future sales indicator
