Canadian Consumer and Business Sentiment Amid Trade Tensions

A recent survey by the Bank of Canada reveals that consumer sentiment remains cautious due to high prices and economic uncertainty stemming from ongoing trade tensions with the United States. The quarterly Survey of Consumer Expectations indicates that many Canadians perceive an increased likelihood of missing debt payments and job losses, despite some optimistic signs regarding job availability. Respondents expressed concerns about inflation, particularly citing tariffs as a significant factor driving prices higher. Overall, consumer expectations have declined compared to pre-pandemic levels and are lower than before the trade conflict began.

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The survey, conducted between November 6 and November 26, shows that nearly half of the respondents believe Canada has avoided the most severe impacts of the U.S. trade conflict, while 10% think the worst is already behind. However, 28% feel that the most challenging times are still ahead. Claire Fan, a senior economist at RBC, noted that while the macroeconomic outlook appears more stable, uncertainty regarding future trade relations with the U.S. persists, particularly concerning tariffs and the Canada-U.S.-Mexico trade agreement (CUSMA).

In parallel, the Bank of Canada's fourth-quarter business outlook survey indicates subdued business sentiment, with firms expecting only modest sales growth in the coming year. Approximately 21% of businesses plan to reduce their workforce, the highest percentage since mid-2016. Despite a slight improvement in the business outlook indicator, firms remain cautious due to ongoing trade-related uncertainties and economic conditions. The survey highlights that while inflation expectations have eased below pre-pandemic levels, they remain elevated compared to historical norms.

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Consumers are feeling the pinch of rising costs, particularly in essential areas such as food and housing. Brad Berg, a Calgary shopper, shared his experience of adjusting spending habits in response to increasing prices, stating, "You live with it. There's not much else you can do." Food economist Mike von Massow emphasized that consumers tend to react more strongly to negative news, particularly regarding regular expenses like groceries, which can lead to a heightened perception of inflation.

Experts have noted that the negative consumer sentiment is not surprising given the current economic landscape. Von Massow remarked that it takes time for consumers to adjust to changing economic conditions, and rising costs can disproportionately affect lower-income households. Fan echoed this sentiment, warning that continued price increases could significantly impact those with limited financial flexibility.

As Canada navigates the complexities of its trade relationship with the U.S., both consumer and business sentiments reflect a cautious outlook. While there are signs of stability, the overarching concerns about inflation and economic uncertainty continue to shape expectations for the future. The upcoming interest rate decision by the Bank of Canada on January 28 will be closely watched as a potential indicator of how policymakers plan to address these challenges.

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