More Canadian firms see chance of recession in next year - central bank survey

By Promit Mukherjee and David Ljunggren

OTTAWA, April 7 (Reuters) - Canadian firms and consumers see a sharply higher chance of recession over the coming year as U.S. President Donald Trump's tariffs and possible retaliation fuel widespread uncertainty, the Bank of Canada said on Monday.

About 32% of companies surveyed by the BoC for a quarterly analysis of business conditions expect a recession over the next 12 months, up from 15% in the previous two quarters. A similar survey of consumers showed 66.5% of them see a recession, a jump of 20 percentage points from the previous quarter.

The surveys were conducted in February, before Trump's April 2 announcement of tariffs on almost all trading partners.

Economists and analysts say the tariffs and subsequent retaliation from various countries will destabilize global supply chains and could push many countries into recession.

"Business sentiment has deteriorated, and uncertainty is widespread due to the trade conflict with the United States. Firms are developing plans to mitigate the effects of tariffs on their operations but see many challenges ahead," the BoC said in the survey.

The business outlook indicator - a metric of what business prospects look like under current economic conditions - reversed its upward trend and fell to below average.

Around 40% of firms expect lower sales growth if tariffs are implemented and exporters in the manufacturing sector have cut their sales expectations for 2025.

The survey shows many firms have put their investment and hiring plans on hold, with employment intentions at a level lower than they were at any point during the pandemic.

Companies also do not expect the increases in input prices to slow any more, a stark change from recent history, the BoC said, indicating inflationary pressures are likely to build up. Inflation in Canada jumped to an eight-month high of 2.6% in February.

The survey showed 65% of businesses believe their costs would climb if widespread tariffs are implemented. As a result, 40% of all firms would increase their selling prices.

The bank is vowing to support businesses and consumers and control inflation through monetary policy, but says it will not be able to completely offset the impact of tariffs.

Currency swap markets see a 66% chance of yet another rate cut next week. If it happens, this would be the bank's eighth consecutive reduction, bringing down the policy rate to 2.5%.

The consumer survey showed Canadians were increasingly concerned about their job security and financial health, which was hitting their spending plans.

(Reuters Ottawa editorial)

Keywords: CANADA CENBANK/