The Bank of Canada has intensified its consultations with businesses and households to understand the effects of the US-initiated trade conflict on Canadian economic decisions. The latest update, based on surveys and consultations conducted between January 29 and February 28, 2025, highlights a prevailing sense of unpredictability in the economic climate.
Businesses and households are finding it challenging to make investment and hiring decisions due to the uncertainty surrounding planned US tariffs. "The scope and magnitude of planned US tariffs, along with the timing of their implementation, continue to change," states the report. This situation is affecting job security concerns among households, particularly those in sectors heavily reliant on trade.
Household spending is projected to decrease as individuals become more worried about their financial health. Businesses have also lowered their sales outlooks, with manufacturing seeing significant declines in order books and sales inquiries. However, a strong "Buy Canadian" sentiment appears to be mitigating some negative impacts.
Trade uncertainties are causing many businesses to cut back on hiring and investment plans. Some companies face difficulties accessing credit, while others deal with rising costs for imported capital goods like equipment and machinery. Despite these challenges, most businesses continue existing investment projects aimed at maintaining capacity and improving productivity.
Pricing intentions show that many businesses plan to increase prices if tariffs are imposed on inputs or products. About half of surveyed businesses intend to pass more than half of tariff-related cost increases onto customers. Meanwhile, other firms do not anticipate raising prices due to expected stable costs or competition constraints.
Inflation expectations among both households and businesses have risen recently as they foresee trade tensions leading to higher prices. Short-term inflation expectations have increased accordingly.