How the Trade War is Weighing on the Minds of Canadians: Insights from the Bank of Canada’s Latest Survey
March 20, 2025
While the spotlight last week was on the Bank of Canada’s decision to lower the policy rate by 25 basis points, the Bank’s recent survey of businesses and consumers, conducted between January 29 and February 28, 2025, offers a revealing glimpse into how Canadians are coping with the ongoing trade conflict with the U.S., and navigating uncharted economic waters.
CPAs should take note of the survey findings as they showcase how trade uncertainty is impacting economic decision-making, shifting consumer behaviour, and altering business forecasting and priorities for investment.
Worries about Job Security and Financial Health
The survey underscores the long shadow that trade uncertainty has cast over the way Canadians are thinking about their finances. Businesses and households alike are grappling with the ever-changing landscape of U.S. tariffs and Canadian retaliatory measures. This uncertainty is not just a backdrop; it’s a driving force affecting economic decisions across the board.
Household Spending: A Shift Towards Caution
Canadians are now broadly more cautious about their personal finances, particularly those employed in trade-sensitive sectors, such as mining, oil and gas, manufacturing, and agriculture and forestry. Concerns about job security are prompting households to tighten their belts and shift towards saving. According to the survey, 27% of respondents indicate they are saving more for precautionary reasons, while 25% are delaying major purchases.
Business Outlook: Scaling Back and “Buying Canadian”
Uncertainty is weighing heavily on business decision-making as well. Many have revised their sales forecasts downward, especially in manufacturing and sectors reliant on discretionary spending. Hiring and investment plans have also been scaled back, as credit has become more difficult for some businesses to access and the cost of imported capital goods—such as equipment and machinery—has risen. The survey shows that 40% of businesses have reduced their hiring plans and 48% have scaled back on capital expenditures.
However, the emergence of a strong “Buy Canadian” sentiment among consumers has become a bright spot for Canadian business and is helping to mitigate some of the negative impacts.
Rising Costs and Inflation Expectations
The trade conflict is also driving up costs for businesses. The depreciation of the Canadian dollar, retaliatory tariffs by provincial and federal governments, and supply chain disruptions are all contributing to higher input costs. Businesses are developing plans to diversify their product sources to sidestep tariffs and trade disruption, but these new suppliers are often costlier than their existing suppliers.
Notably, the surveyed businesses plan to pass a significant portion of costs on to consumers if tariffs are imposed. Nearly half of businesses (49%) plan to raise prices if tariffs are in place, and of those planning to raise prices, 77% are expecting to pass on more than half of the tariff-related cost increases to their customers.
Retailers, in particular, believe they would be able to rapidly pass on cost increases if they are transparent about the reasons for the increase (i.e. tariffs and the ongoing trade war with the U.S.).
Inflation Expectations on the Rise
Both businesses and households anticipate that trade tensions will lead to higher prices, reflected in a recent rise in short-term inflation expectations. This sentiment is a clear indicator of the broader economic impact of the ongoing trade wars. The survey indicates that 47% of businesses and 72% of households expect prices to increase due to trade tensions. This expectation is born out in the acceleration of inflation in February, pushing the inflation rate above 2% for the first time in seven months, driven in part by the end of the federal GST holiday.
Conclusion
While the Bank of Canada’s interest rate decision grabbed headlines, the insights from the household and businesses survey provide CPAs with a critical understanding of how Canadians are perceiving and reacting to the current economic climate.
The bottom line: Canadian consumer and businesses are readying for tough times to weather the storm. As CPAs continue to navigate these uncertain times, it’s essential to keep a close eye on these evolving sentiments and their implications for our economy.