Canadian firms' outlooks dimmed after trade talks collapse, BoC survey finds
TLT•Canadian firms said their outlooks weakened after U.S.-Canada trade talks collapsed on August 21, though sentiment remained stronger than at the height of tensions in 2025. The Bank of Canada's third-quarter business outlook indicator edged up to -0.33 from -0.38, while surveys showed higher inflation expectations.
1. Trade tensions weigh
A September survey of about 340 business leaders found that new U.S. tariffs and Canadian counter-tariffs had weighed on firms' outlooks since trade talks broke down on August 21. The Bank of Canada described the change as “a moderation rather than a fundamental shift” and said sentiment remained considerably stronger than at the height of trade tensions in 2025.
2. Inflation expectations rise
The third-quarter Business Outlook Survey, largely conducted before the talks collapsed, showed overall sentiment had improved, but that improvement had partially reversed. Both surveys pointed to higher inflation expectations amid rising input costs and elevated selling prices linked to trade tensions and the Middle East crisis; firms' hiring intentions remained soft, while most planned to retain existing employees.
3. Policy and consumer views
The business outlook indicator rose to -0.33 in the third quarter from -0.38 in the prior three months. A separate consumer survey found that more than 50% of respondents expected a recession within 12 months, and five-year inflation expectations had risen. Money markets were pricing in a Bank of Canada rate hold on October 28 and a 25-basis-point increase in December.
