Two Bank of Canada surveys published Monday reflected improved economic outlook from business and consumers, but concerns about potential U.S. tariffs ahead.Sean Kilpatrick/The Canadian Press
Canadian businesses and consumers are growing more confident about the country’s economic outlook after a series of interest-rate cuts, although there is trepidation about the potential impact of U.S. tariffs, according to a pair of Bank of Canada surveys published Monday.
The central bank’s quarterly Business Outlook Survey, conducted in November, found a growing number of companies expect sales to improve over the coming year. More businesses also plan to resume investments that had been put on hold because of high interest rates and tepid demand from customers.
A separate survey showed consumers are feeling better about their finances and plan to increase spending, although nearly half the respondents still said they expect a recession in 2025.
Together, the surveys show the Bank of Canada’s quick succession of rate cuts since the summer – which brought the policy rate down to 3.25 per cent from 5 per cent – are feeding through to households and businesses. At the same time, the decline in inflation is showing up in lower expectations for price increases, potentially paving the way for more interest-rate cuts.
Financial markets expect the central bank to continue easing monetary policy at its next rate announcement on Jan. 29, with investors putting the odds of another quarter-point cut at around 75 per cent, according to LSEG data.
“The positive trends in consumer and business sentiment appear to hinge on further rate cuts. As a result, we don’t see these responses as derailing a 25-basis-point rate reduction next week,” wrote Royce Mendes, head of macro strategy at Desjardins, in a note to clients.
“These results also align with our view that the Bank of Canada is headed towards a 2-per-cent terminal rate early in 2026, even if U.S. tariff policy takes a while to materialize. With inflation expectations normalizing, the door is open for the Bank of Canada to keep lowering rates in an attempt to push the unemployment rate down and absorb economic slack,” he added.
The Business Outlook Survey indicator, which captures the general feeling of survey respondents, improved for the third consecutive quarter. It remains “subdued” by historical standards, with companies still worried about soft demand, economic uncertainty and taxes and regulations. However, the bank noted “signs of emerging optimism, with business activity showing tangible improvements from its low level.”
Investment intentions improved notably, particularly among oil and gas companies, which are benefiting from the opening of the Trans Mountain pipeline expansion and the expected launch of the liquefied natural gas export terminal in Kitimat, B.C., in mid-2025.
Concerns about a potential trade war with the United States are nonetheless weighing on investment decisions and sentiment overall. Around 40 per cent of survey respondents said they expected the new U.S. administration to have a negative impact on their businesses, with most pointing to the potential for trade tensions to raise the cost of inputs.
Canadian consumers also see a risk from the incoming administration. Nearly half said they expected a recession in the coming year, and 58 per cent said they remain uncertain about where the economy is heading. “Survey results show that the sources of this uncertainty have shifted from interest rates and government policies to global tensions, including from the new U.S. administration,” the bank noted.
New U.S. President Donald Trump has threatened to put sizable tariffs on Canadian imports, although media reports Monday said he will not follow through on this threat right away.
Broadly speaking, the consumer survey showed Canadians are feeling better about household finances as mortgage rates have fallen and credit has become more available. That’s showing up in increased spending plans and a revival of interest in real estate.
However, the survey showed there are still areas of concern. The perceived risk of missing a debt payment has increased, especially among renters. And consumers are becoming more worried about job security. “Young people and those with a high school diploma or less education perceived more weakness in the labour market than other consumers,” the bank said.
There will be several more data releases from Statistics Canada before the Bank of Canada announces its rate decision next week, including December inflation data on Tuesday and November retail numbers on Thursday.