The hallways of financial institutions across Canada fell silent Monday morning as the Bank of Canada released its highly anticipated second-quarter Business Outlook Survey, revealing a complex economic landscape that continues to challenge businesses and consumers alike.
For the first time since late 2023, business sentiment has shown modest improvement, though caution remains the watchword for most executives. The survey, which polled over 100 businesses between May and June, indicates that 63% of firms expect sales growth to accelerate in the coming year—up from 51% in the previous quarter.
“We’re seeing the first green shoots after a prolonged period of uncertainty,” said Marcus Chen, chief economist at Westshore Financial Group. “But these improvements are fragile and unevenly distributed across sectors.”
The manufacturing and technology sectors reported the strongest outlook, with 72% of respondents anticipating increased orders. Meanwhile, retail and hospitality continue to struggle, with only 41% forecasting improved conditions—highlighting the uneven nature of Canada’s economic recovery.
Inflation expectations have moderated significantly, with businesses projecting an average rate of 2.8% over the next two years, down from 3.5% in the previous survey. This shift aligns with the Bank’s target range and suggests that its aggressive interest rate policy may finally be yielding the desired results.
Investment intentions tell a more nuanced story. While 58% of businesses plan to increase capital expenditures in the next 12 months—up 7 percentage points from Q1—many are directing these funds toward efficiency improvements rather than expansion, pointing to lingering concerns about long-term economic stability.
The parallel Canadian Survey of Consumer Expectations revealed that household financial anxiety has eased slightly but remains elevated. Consumers expect inflation of 2.9% over the next year, while wage growth expectations have moderated to 3.2%—a potential signal that labor market pressures may be cooling.
“The data suggests we’re in a transition phase,” noted Samantha Wright, Deputy Governor at the Bank of Canada. “Businesses and consumers are cautiously optimistic, but they’re not yet convinced we’ve turned the corner completely.”
Labor market dynamics continue to evolve, with 47% of businesses reporting labor shortages as a significant constraint—down from 56% a year ago. However, competition for specialized talent remains fierce, particularly in healthcare, advanced manufacturing, and artificial intelligence sectors.
The survey also highlighted regional disparities, with Atlantic Canada and British Columbia reporting more robust business confidence than central provinces. Alberta’s outlook has improved substantially, bolstered by relatively stable energy prices and diversification efforts in renewable energy sectors.
Perhaps most telling is the shift in businesses’ primary concerns. While inflation and interest rates dominated previous surveys, supply chain resilience and geopolitical tensions have emerged as the leading worries for executives looking ahead to 2026.
The findings will undoubtedly influence the Bank of Canada’s upcoming interest rate decision scheduled for next month. Markets have already begun speculating about potential policy adjustments, with bond yields responding within hours of the survey’s release.
What remains clear is that Canada’s economic recovery continues to require careful navigation. As one manufacturing executive anonymously quoted in the survey stated, “We’re no longer in crisis mode, but we’re certainly not back to business as usual—and we may never be.”
The complete survey results can be viewed on the Bank of Canada’s official website, providing deeper insights into the forces shaping Canada’s economic future as we move through the second half of 2025.
