The Canadian economy is doing better than many had anticipated, but it’s far from a strong economy. Statistics Canada’s (StatCan) Survey on Business Conditions shows strong optimism in Q3. However, that optimism isn’t driven by growth in sales or operations, but the hope that things won’t get worse.
Canadian Businesses Are Optimistic, But Few Expect Sales Growth
The agency found 72.6% of businesses are very or “somewhat” optimistic about their 12 month outlook. This is 5.8 percentage points higher than Q2, and pretty much where it was in Q1. However, optimism doesn’t mean sales growth in this environment.
Most (68.1%) expect sales to stall in Q3, up from 60.7% in Q2. Another 13.9% expect declining sales, a slight improvement from 16.3% over the same period. It’s not clear what’s driving the optimism, but surviving limited downward pressure may be it. When faced with destabilizing risks, nothing happening can feel like winning the lottery.
Hiring, Demand, and Profit Expectations Are Weak Too
Most companies (84%) expect to keep their employee headcount unchanged, up from 81.3% in Q2. Those points came from a decline in hiring intentions, from 11.3% in Q2 to 8.3%. Companies expecting to reduce their headcount saw a minor uptick, moving from 7.4% to 7.7% over the same period.
Hiring stagnation is likely due to the profitability shift. Only 10.5% of firms expect profits to increase over the next 12 months, down from 11.3% in Q2. In contrast, nearly 3x that volume (28.7%) expected profits to shrink, though that improved from 32.7% in Q2. Most firms (58%) see no change to profits, up from 52.8% last quarter. The weak outlook when it comes to profits are largely due to rising costs.
Costs Are Easing, But Inflation Still Tops The Risk List
Just as inflationary concerns eased, tariffs are adding to renewed cost pressures. Most (59.8%) of firms expect cost-related obstacles, down from 64.3% in Q2 but still a widespread concern. The most commonly cited obstacle was inflation, according to 41.6% of firms. While input costs are easing, tariffs have been pushing prices higher for consumers.
Over the past year, 27.4% of businesses passed on tariff-related price increases. Another 30.4% said they’re very or “somewhat” likely to hike prices due to tariffs. The survey only covered up to August 2, before the latest round of the tariff war. After the US imposed a fresh round of tariffs, Canada will impose new tariffs on US-imports starting September 8th.
Canadian businesses are showing increased optimism, but it’s a fragile state. Despite the positive outlook, most businesses don’t see sales or operations growth. Their optimism is entirely based around conditions not eroding any further. On the upside, that’s a pretty low bar to clear. On the downside, businesses are optimistic about stagnation.
