Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectations (2025 Q4)

Canadian business sentiment remained subdued while consumer sentiment deteriorated 

Business sentiment

• The Bank of Canada's Business Outlook Survey (BOS) overall indicator improved slightly in Q4 but remained subdued at -1.78. The share of firms anticipating a recession eased to 22% from 33% in the previous quarter. 
• Firms' expectations for future sales turned positive, though they remain below the long-run average. 
• Investment intentions improved modestly in Q4. However, plans remain cautious, with firms continuing to prioritize maintenance spending over expansion.
• Hiring plans weakened in Q4 after two quarters of modest growth, driven by the share of firms planning outright staff reductions rising to the highest level since 2016. 
• Wage growth expectations have stabilized after several quarters of cooling, reflecting ongoing profitability constraints.
• Expectations for both input and output price growth eased further in Q4, pointing to continued improvement in price pressures. One-year inflation expectations declined to 3.0% from 3.2%, while five-year inflation expectations held steady around 2.8%.

Consumer sentiment 

• After improving in Q3, the Bank's Canadian Survey of Consumer Expectations (CSCE) indicator declined modestly in Q4 and remains well below its pre-pandemic average.
• The deterioration was driven primarily by the financial health index, as a larger share of respondents reported worsening finances and a higher likelihood of missing a debt payment compared with the previous quarter. 
• Consistent with this, spending intentions edged lower.
• The labour market index rose slightly, but remains below the pre-pandemic level, reflecting elevated expectations of job loss.
• Longer-term inflation expectations declined by 0.6 points in Q4 to 3.1%, falling below their pre-pandemic average. Short-term inflation expectations, however, edged slightly higher.

Key Implications

• Business sentiment improved modestly in Q4, but closed 2025 below last year's levels, with the Bank of Canada characterizing the mood as "subdued". Firms are expecting stronger demand in 2026, however export sales growth expectations remain muted. While trade uncertainty seems to have eased, hiring and investment plans are expected to remain constrained. 
• Meanwhile, consumer sentiment remains under pressure, driven by a perceived deterioration in financial health. This is weighing on consumer spending intentions overall. That said, real spending expectations are more resilient among households with equity holdings, pointing to a modest wealth effect from the recent equity market rally.

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