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The Bank of Canada’s fourth-quarter 2025 Business Outlook Survey, conducted from November 6 to 26, 2025, reveals subdued but improved business sentiment from the lows of mid-2025.
The optimism was amid a stabilization of trade related pressures—most exporting firms surveyed continued to report they were not subject to tariffs thanks to CUSMA exemptions—and coincided with improvements in the labour market. However, those that have been strongly impacted by tariffs, especially in the metal and auto industries, reported significantly weaker outlooks.
A bifurcated backdrop among Canadian industries can only be treated by actual moderation in tariff measures, not easing monetary policy. That, coupled with still elevated near-term inflation expectations are why we don’t expect further rate cuts this year from the Bank of Canada.
More specifically:
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Business confidence has edged higher, with the share of firms budgeting for a recession declining to 22% in Q4 from 33% in Q3—the lowest level in 2025. Trade-related uncertainty and tariff effects continue to weigh on business outlooks. However, the balance of opinion on future sales indicators has turned positive for the first time in three quarters, suggesting firms expect conditions to stabilize rather than deteriorate further.
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Sales growth over the past year has been weak, but firms anticipate modest growth going forward. Those strongly impacted by US trade policies reported significantly weaker sales and outlooks than less affected firms. Export sales growth is expected to remain modest, with most exporters citing soft US demand and customer hesitancy around trade policy.
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A small but growing share of Canadian exporters are diversifying into non-US markets to reduce exposure to trade uncertainty. Most firms have not made the pivot, citing barriers to diversification—including capital investment, transportation costs, and regulatory compliance—as key limiting factors.
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Firms’ investment intentions have improved slightly but remain focused on routine maintenance rather than expansion, given ample spare capacity to meet current needs. In the oil and gas sector, investment is expected to decline 1.7% in 2026 due to low oil prices, though oil sands production remains viable at current price levels and natural gas demand continues to support output.
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Surprisingly, the share of firms planning staff reductions has risen to its highest level since 2016, a departure from actual labour market data, which showed a decline in unemployed workers that were permanently laid-off between October and December 2025.
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Improving expectations on trade led a moderation in cost pressure expectations, although wage growth expectations actually ticked slightly higher after having moderated consecutively since a peak in 2022. Additionally, weak demand is constraining firms’ pricing power less than previously.
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Finally, firms’ inflation expectations remain elevated for the next year at 3% but are better anchored over the long run, fluctuating around 2.5% to 3%. Those expectations were echoed among Canadian consumers in the separately released consumer expectations survey, which showed near-term one-year inflation expectations elevated at 4% while longer-run five-year-ahead inflation expectations normalized toward 3%.
About the Author
Claire Fan is a Senior Economist at RBC. She focuses on macroeconomic analysis and is responsible for projecting key indicators including GDP, employment and inflation for Canada and the US.
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