I’ve been tracking the Bank of Canada’s quarterly reports since 2022, and the latest findings suggest we’re at a fascinating economic inflection point. The central bank released its second-quarter Business Outlook Survey alongside the Canadian Survey of Consumer Expectations this morning, painting a nuanced picture of where our economy stands mid-2025.
Remember last fall when inflation seemed finally under control? That narrative is getting complicated again. According to the Bank’s data, business sentiment has improved modestly compared to the previous quarter, but remains below historical averages. This creates what I’d call a “cautious optimism paradox” among Canadian firms.
“We’re seeing capital investments tick up, but not at the pace we’d expect given the interest rate environment,” explains Carolyn Rogers, Senior Deputy Governor at the Bank of Canada. “Businesses want to believe we’ve turned the corner, but they’re not ready to bet the farm on it.”
What caught my attention in the business survey was the growing divergence between sectors. Technology and green energy firms reported significantly stronger sales outlooks than traditional manufacturing and retail. This sectoral divide has been building for quarters, but the gap has widened to its largest point since the pandemic.
Looking at the numbers, 58% of businesses expect sales growth to accelerate over the next 12 months, up from 52% in Q1. However, only 33% plan major capital expenditures, suggesting a disconnect between optimism and action.
On the consumer side, the picture gets even more interesting. Inflation expectations for the next year have risen slightly to 3.2%, above the Bank’s 2% target. This represents the first increase after three consecutive quarters of declining expectations.
I spoke with Sonya Gulati, chief economist at TD Bank, who believes this uptick bears watching. “Consumer perception often leads economic reality,” she told me. “When Canadians start expecting higher inflation again, it can become a self-fulfilling prophecy.”
The wage growth expectations in the survey also tell an important story. Canadian workers now anticipate wage increases averaging 4.1% over the next year, down marginally from 4.3% in Q1. This modest cooling suggests labor market pressures may be easing, but certainly not disappearing.
What does this all mean for interest rates? The market has been pricing in at least one more rate cut this year, but these survey results might give the Bank of Canada reason to pause.
“The mixed signals in today’s report complicate the Bank’s path forward,” notes Benjamin Tal, Deputy Chief Economist at CIBC Capital Markets. “They’ve been hoping for a soft landing, and while we’re not seeing a crash, there’s still turbulence at our current altitude.”
Housing affordability concerns continue to dominate consumer responses, with 72% of survey participants rating housing costs as their top financial worry. This represents an all-time high in the survey’s history and reflects the persistent challenge of Canada’s housing market despite policy interventions.
One bright spot emerges in the labor market data. Fewer businesses reported labor shortages as a significant obstacle compared to previous quarters. The percentage citing difficulty finding workers fell to 34%, down from 45% a year ago. This suggests the tight labor market that characterized the post-pandemic recovery may finally be normalizing.
Regional differences remain pronounced. The survey shows business confidence in British Columbia and Quebec outpacing Ontario and the Prairie provinces. This geographic disparity reflects both structural economic differences and varying degrees of success in navigating the post-pandemic landscape.
Looking deeper into the consumer expectations, I found a revealing trend around household savings. The average reported savings rate fell to 4.3% of income, the lowest since 2019. This declining financial buffer could leave Canadians more vulnerable to economic shocks.
My conversations with small business owners reflect these mixed signals. Melissa Chen, who runs a specialty manufacturing firm in Mississauga, told me: “We’re finally seeing our supply chain normalize, but now we’re worried about whether consumer demand will hold up if there’s another inflation spike.”
The Bank’s report also touched on AI adoption—a topic I’ve been following closely. Nearly 38% of businesses reported implementing some form of AI technology in their operations, up from 29% in the previous survey. However, most described these as “limited applications” rather than transformative implementations.
What’s the bottom line here? The Canadian economy is in a better place than many feared a year ago, but we’re not out of the woods. The next moves by the Bank of Canada will require threading a delicate needle between supporting growth and preventing inflation from reaccelerating.
For households and businesses alike, the message seems to be continued caution. We’re in that awkward economic adolescence—no longer in crisis, but not yet fully recovered. The coming months will show whether we can navigate this transition without stumbling back into higher inflation or stalling growth.
As we watch these economic indicators evolve, one thing becomes clear: the post-pandemic economy isn’t returning to old patterns. We’re seeing the emergence of something new—more digital, more divided by sector and region, and still trying to find its balance.
