Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectations (2025 Q3)

Canadian business and consumer sentiment rises modestly but remains negative in Q3 2025

Business sentiment

• The Bank of Canada's Business Outlook Survey (BOS) overall indicator improved slightly but remained subdued at -2.28 in Q3. The share of businesses anticipating a recession rose to 33%, up from 28% last quarter. 
• Consumer demand remains subdued. While the balance of opinion on future sales improve marginally to zero, export sales weakened further, now sitting 27 points below its historical average. 
• Investment intentions were unchanged in Q3, following a modest rebound in Q2, remaining well below long-term norms. 
• Hiring plans picked up slightly, but remain below pandemic-era levels, helping to further ease wage pressures toward pre-pandemic norms.
• Cost pressures persist, with tariffs and trade tensions cited as the main source of upward pressure. However, firms report limited pricing power due to weak demand. Long-term inflation expectations held steady around 2.5%, while shorter-term inflation expectations have come down from their peaks earlier in the trade war.

Consumer sentiment 

• The Bank's new Canadian Survey of Consumer Expectations (CSCE) indicator, introduced in July and combining measures of financial health, labour market conditions and consumer spending intentions, rose modestly in Q3 from its recent low.
• The financial health index was the main driver of improvement, as more consumers reported that their personal finances have improved compared with the previous quarter. 
• With more respondents feeling financially better off, spending intentions also ticked higher, led by the wealthier segment, particularly homeowners and older Canadians.
• The labour market index was the only component to weaken, slipping to -0.2 from -0.15 in Q2. This deterioration appears less tied to trade tensions, given a notable drop in job-finding prospects for public sector workers.
• Longer-term inflation expectations edged up by 0.22 points in Q3 to 3.67% (near their pre-pandemic average), while short term inflation expectations were largely unchanged.
• Despite some improvement in sentiment, the share of consumers expecting recession over the next 12 months remained elevated with roughly two-thirds expecting a downturn.

Key Implications

• Business and consumer optimism improved slightly in Q3, reflecting a modest easing of trade tensions, greater clarity on tariff measures and an improvement in household financial health supported by rising net worth. However, the overall level of sentiment remained subdued for both businesses and consumers. Beneath the surface, conditions in the steel and aluminum sectors have worsened, with firms in these industries reporting especially weak outlooks that are leading to significant layoffs.
• While longer-term consumer inflation expectations rose, they are similar to levels prior to the pandemic, suggesting consumers tend to overestimate longer-term inflation. Moreover, given that the survey was conducted before the federal government announced plans to remove counter-tariffs, we think inflation expectations may ease next quarter. The reports of weaker pricing power among firms are encouraging from inflation perspective, even if they point to narrower profit margins for businesses.

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