In a climate of cautious optimism, the Bank of Canada released its second-quarter Business Outlook Survey alongside the Canadian Survey of Consumer Expectations this Monday, revealing a complex economic landscape that continues to evolve in the post-pandemic era.
The comprehensive report, eagerly anticipated by investors and financial analysts, points to modest improvements in business sentiment after nearly two years of restrictive monetary policy. Firms across various sectors report easing supply chain pressures, though many continue to cite persistent labor shortages as a primary constraint on growth.
“We’re seeing a measured recovery in business confidence,” said Bank of Canada Governor Tiff Macklem during the press conference following the release. “While inflation concerns have moderated, we remain vigilant about several pressure points that could influence our monetary policy decisions through the remainder of 2025.”
The data shows investment intentions among Canadian businesses have strengthened compared to previous quarters, with 58% of surveyed firms indicating plans to increase capital expenditures over the next twelve months. This marks a 7% increase from Q1 findings and suggests growing confidence in medium-term economic prospects.
Consumer expectations, meanwhile, present a more nuanced picture. The survey indicates Canadians have tempered their inflation expectations to 2.8% for the year ahead, down from 3.2% in the previous quarter. However, housing affordability remains a significant concern, with 72% of respondents expressing pessimism about their ability to purchase homes in their desired markets.
The labor market continues to show resilience despite recent cooling. Unemployment has stabilized at 5.7%, higher than the pandemic-era lows but still historically strong. Wage growth expectations have moderated to 3.9% annually, suggesting the wage-price spiral concerns that dominated policy discussions throughout 2024 may be abating.
Perhaps most telling is the shift in business sales expectations. After several quarters of declining optimism, 47% of firms now anticipate higher sales volumes over the next year—a signal that domestic demand may be recovering despite higher interest rates.
“The Business Outlook Survey results provide crucial forward-looking insights that complement our traditional economic indicators,” noted Deputy Governor Sharon Kozicki. “These survey findings help us understand how economic actors are adjusting their expectations and behaviors in real-time.”
The report carries significant weight as financial markets continue pricing in potential rate cuts later this year. Current overnight rate stands at 3.75%, down from its peak of 5% in early 2024, but still well above pre-pandemic levels.
For Canadian households still feeling the squeeze of higher borrowing costs, the report offers some encouragement. Consumer debt service ratios have stabilized, and the survey shows fewer Canadians reporting financial stress compared to previous quarters.
The Bank’s findings will likely influence upcoming monetary policy decisions as policymakers balance inflation control against supporting economic growth. With core inflation now tracking at 2.3%—approaching the Bank’s 2% target—the data suggests Canada’s economic adjustment to higher interest rates may be entering its final phases.
As markets digest these latest economic signals, all eyes now turn to the Bank of Canada’s next rate announcement scheduled for September 4, where these survey results will undoubtedly play a critical role in shaping Canada’s monetary policy direction for the remainder of 2025.
