BoC outlook survey highlights deteriorating trade expectations on tariff fears
The Bank of Canada's (BoC) Business Outlook Survey for the first quarter has shown that overlook economic activity expectations are contracting sharply as the United States (US) seeks to spark a global trade war across the board. According to the BoC, firms are overwhelmingly set to begin increasing prices in an effort to overcome steep import taxes being imposed by the Trump administration.
Key highlights
- Q1 BoC survey shows overall sentiment has deteriorated, uncertainty remains widespread.
- Business survey indicator has declined to -2.14 from -1.16 in Q4 2024.
- 32% of Canadian firms expect Canada to be in a recession in 12 months' time, up from 15% in Q4.
- 65% of firms believe costs will be pushed higher; 35% of firms expect to directly increase selling prices.
- Fewer businesses expect sales increases over the next year.
- 23% of firms expect inflation to remain above 3% for the next two years.
- 28% of firms have reported direct decline in outright sales over the past year.
- 66.5% of Canadians expect a recession in the next 12 months.
- Consumers expect 5-year inflation to rise to 3.39% versus 2.99% last.
- Survey results were collected from February 2 to February 26, does not include latest Trump tariff announcement from April 2.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.