A view of the Bank of Canada building in Ottawa, Ontario, Canada May 8, 2025. REUTERS/Blair Gable

By Promit Mukherjee and David Ljunggren

OTTAWA, Oct 20 (Reuters) - Canadian firms feel conditions are slightly better than earlier in the year but they are unlikely to boost investments or hiring given the dampening effect of U.S. tariffs, a Bank of Canada survey showed on Monday.

The quarterly business outlook survey is closely watched by the BoC and economists to gauge what Canadian firms expect in terms of inflation, sales and hiring.

Tariffs and trade tensions continue to weigh on the outlooks of many firms, the survey said, adding that while business sentiment had continued to improve from the lows seen in early 2025, it remained moderate.

The business outlook indicator, a summary of business activity, prices and costs, and capacity, rose to -2.28 in the third quarter from -2.40 in the previous quarter.

The survey, conducted between August 7 and September 3, noted firms did not expect sales growth to strengthen over the coming year as tariffs continue to scuttle demand.

That said, the balance of opinion on future sales has improved marginally.

The share of firms expecting a recession over the next year increased slightly to 33% from 28% in the second quarter. Concerns around a downturn were primarily responsible for offsetting the improvement in business sentiment, the BoC said.

Firms will not invest additional capital for building capacity and many are putting new investments on hold while their hiring intentions remain subdued, the survey said, citing the impact of tariffs.

The BoC issued the survey just days before it is due to announce its latest decision on rates and release quarterly economic projections.

Money market bets show that is almost a 77% chance of a 25 basis point rate cut.

One-year ahead inflation expectations are around 3% in the third quarter, almost similar to the previous quarter, but firms are widely reporting cost pressures.

Businesses still expect their input prices to increase at a faster pace over the next 12 months compared with the past 12 months, it said, adding that wage growth over the next 12 months continued to trend lower.

A separate survey by the central bank on consumer expectations showed 64.1% of Canadians expect a recession over the next 12 months, down from 64.4% in the second quarter.

(Reuters Ottawa editorial)

Keywords: CANADA CENBANK/