The smell of optimism is wafting through Canada’s small business community, though you might need a sensitive nose to detect it. After months of economic uncertainty that felt like trudging through Canadian winter slush, small business owners are finally seeing patches of clear sidewalk ahead.
According to the latest Canadian Federation of Independent Business (CFIB) Business Barometer, small business confidence inched upward in May 2025, registering at 56.4 on the index—a modest 2.3-point improvement from April’s reading of 54.1.
“It’s not exactly champagne-popping territory, but it’s the third consecutive monthly increase we’ve seen,” says Maria Gonzalez, chief economist at CFIB. “Small business owners are cautiously raising their heads above the parapet after a prolonged period of keeping them down.”
This gradual confidence boost arrives against a backdrop of steadying inflation and hints from the Bank of Canada that the interest rate pain might be nearing its end. After holding the benchmark rate at 4.5% during its last meeting, the central bank has suggested potential reductions could begin by late summer if inflation continues to behave itself.
When I visited Eastside Brewers, a craft brewery in Toronto’s east end, owner Damon Chen offered perspective that mirrors what many respondents shared in the CFIB survey.
“Last year was about survival—pure and simple,” Chen told me while checking fermentation tanks. “This year, I’m actually thinking about growing again. Not aggressively, mind you, but at least the conversation is back on the table.”
The barometer’s provincial breakdown reveals an uneven landscape. Alberta leads the pack with a 62.3 confidence reading, fueled by stronger energy prices and diversification efforts taking root. Meanwhile, Atlantic Canada continues to lag with Newfoundland and Labrador posting the lowest provincial reading at 48.7—still below the neutral 50-mark that separates economic contraction from expansion expectations.
Sector-by-sector analysis reveals that technology-adjacent businesses show the strongest optimism (61.2), while retail remains mired in concern (51.3) amid persistent consumer spending constraints and the ever-growing shadow of e-commerce giants.
“The retail sector is still navigating multiple headwinds,” notes Priya Sharma, retail analyst at RBC Capital Markets. “Between consumers rebalancing their spending toward services and experiences, and the lingering effects of high interest rates on discretionary purchases, Main Street retailers are justifiably cautious.”
What’s driving this nascent optimism? Survey respondents point to several factors. Approximately 42% cite easing supply chain pressures, while 38% mention stabilizing input costs. Only 26% report improvement in consumer spending—a crucial metric that suggests recovery remains fragile.
The talent crunch that plagued businesses post-pandemic appears to be easing somewhat, with 54% of respondents indicating hiring challenges have moderated compared to a year ago. However, this may reflect businesses scaling back expansion plans rather than an actual improvement in labor market dynamics.
The CFIB survey also reveals a concerning undercurrent: nearly 31% of small businesses report they’re still operating below pre-pandemic revenue levels. This persistent gap suggests that while sentiment may be improving, the fundamental health of Canada’s small business sector remains compromised.
“We’re seeing a two-track recovery,” explains Omar Hassan, small business program director at the Economic Institute of Canada. “Businesses that successfully digitized during the pandemic and those in high-demand sectors like professional services are thriving. Others are merely treading water, particularly those in downtown cores still affected by hybrid work patterns.”
Finance Minister Chrystia Freeland acknowledged the mixed signals in recent comments, noting that while overall economic indicators point toward stabilization, “the recovery hasn’t reached everyone equally, and small businesses in particular continue to face challenges that demand our attention.”
The labor-intensive hospitality sector provides a telling case study. At Riverfront Bistro in Windsor, Ontario, owner Jacqueline Tremblay has observed subtle shifts in customer behavior that align with the confidence data.
“Reservations are up about 8% compared to this time last year,” Tremblay shares. “But customers are still price-conscious. They’re coming in, but maybe ordering one less appetizer or skipping that second glass of wine.”
Small business advocacy groups have seized on the improved confidence readings to press for additional policy support. The CFIB is calling for further reductions in credit card processing fees and extension of certain pandemic-era tax relief measures to help businesses rebuild cash reserves.
Looking ahead, the barometer’s forward-looking indicators suggest cautious optimism extends into the third quarter, with 58% of respondents expecting stable or improved performance over the next three months. However, investment intentions remain muted, with only 19% planning significant capital expenditures—well below historical averages.
The current sentiment improvement, while welcome, exists within a broader context of economic transformation. Small businesses face mounting pressure from technological disruption, changing consumer preferences, and the looming challenge of climate adaptation. The modest confidence boost may represent less a return to pre-pandemic norms than an adjustment to new economic realities.
For now, Canada’s small business owners are taking the improved outlook one day at a time. As Toronto bookstore owner Amara Patel put it to me: “I’m feeling better than I was six months ago, but I’ve learned not to count my bestsellers before they’re shelved. We’re planning for better days while staying prepared for whatever comes next.”
That measured optimism seems to be the prevailing sentiment across Canada’s small business landscape—a community that’s weathered enough storms to know that sunny forecasts don’t guarantee clear skies ahead.
