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Broken Bridges, Broken Business Confidence

Canadian Economics

By: Jake Lenarduzzi

    

Business confidence has been on shaky ground for the better part of the last decade. Now, with tariffs adding to a list of ongoing concerns, Canadian business executives have made it clear: sentiment has deteriorated, and the next favourable time to invest remains under cloud cover.

  • Signal49 Research’s Index of Business Confidence fell by 10.0 points to 64.5 (2014 = 100), reaching its second-lowest level on record, surpassed only by a single quarter during the pandemic.
  • Our latest survey was conducted between March 24 and April 8, 2025, with nearly half of the responses collected before U.S. President Donald Trump’s “Liberation Day” announcement on April 2.
  • The decline in confidence was largely driven by a 19.1-percentage point drop in firms seeing it as a good time to invest, and a 10.6-percentage point rise in those expecting their financial position to deteriorate in the coming months.
  • Roughly 64 per cent of businesses are operating below optimal capacity, a slight uptick from our previous survey, coinciding with March’s labour market mood switch, which ended a seven-month streak of employment growth.
  • The share of firms planning on increasing their capital expenditures over the next six months fell by more than 5 percentage points. Now, more than one in four firms expect to reduce investment.
  • Capital returns have also wilted, with about 36 per cent of respondents stating that their investment performance has been worse than expected compared to six months ago.
  • Expectations around prices have waned as well. Currently, 55 per cent of businesses anticipate Canadian prices will rise at an annual rate of 3 per cent or less over the next six months, a double-digit drop from January.
  • Ontario remains the top province for planned investment, cited by 44.6 per cent of firms, more than 20 percentage points higher than any other region in the country.
  • Overall, business executives are significantly more pessimistic about Canada’s economic outlook. Greater than 75 per cent of respondents expect conditions to worsen over the next six months, suggesting a pullback in investment activity.

Insights

The Index of Business Confidence plunged to its second-lowest level ever. This quarter, the Index fell by 10.0 points, marking its first double-digit decline since 2021. Over 30 per cent of survey respondents pointed to four key challenges weighing on planned investment: government policies, weak market demand, depreciation of the Canadian dollar, and rising capital costs. Until these pressures ease, business investment growth is likely to remain subdued.

Government policies remain the leading concern for Canadian businesses but worries about the depreciating Canadian dollar have risen extensively over the past year. In this survey, nearly one-third of firms flagged our currency’s decline as a key issue—the highest share since 2015. Since late last year, the weaker Canadian dollar has pushed up import costs, particularly from the United States, where trade tensions persist. Our latest Canadian 5-Year Outlook projects the Canada–U.S. exchange rate will sit below 70 cents this year, with any additional Bank of Canada rate cuts risking further erosion.

Tariffs are dragging down business sentiment. Since the pandemic, confidence has struggled to regain its footing, prompting questions about when business investment could turn the corner. With tariffs now in the mix, both sentiment and the investment picture have evidently worsened even further. For the first time, we asked firms whether they expect tariffs (or tariff threats) to reduce their capital expenditures in Canada over the next six months. The response was telling: 54 per cent said yes, 22 per cent said no, and 24 per cent were unsure. These results underscore a hard truth—the majority of Canadian businesses are feeling the strain of tariffs, at least when it comes to investment decisions.

For a deeper look at the potential impact of U.S. tariffs, please see our latest metropolitan analysis: The True Cost of Trump Tariffs: City Impacts.

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