I’m not too worried about the worst tariff scenario

By Promit Mukelgie and David Linggren

OTTAWA, July 21 (Reuters) – Canadian businesses are less likely to have the worst rate scenario, but are cautious and have been holding back jobs and investments, the Bank of Canada said in a regular quarterly survey on Monday.

The bank’s business outlook survey shows that short-term inflation expectations for companies have returned to levels observed at the end of last year, with the number of companies planning a recession falling slightly.

Earlier this year, businesses worried that US tariffs would hit the economy hard, causing inflation, weak economic growth and unemployment.

However, their effects are primarily included in the steel, aluminum and the automotive sector. Inflation, job counts and the economy have not deteriorated significantly.

“Uncertainties related to tariffs… continue to have a major impact on the company’s outlook. However, the worst-case scenarios that were supposed to be the last quarter are now considered unlikely to occur,” the survey said.

The bank said about a third of businesses expect high tariff-related costs, down from about two-thirds of the last quarter.

Individual monthly surveys of business leaders suggest that the outlook for businesses, particularly exporters, has improved, with few people affected by tariffs to date.

However, there is still widespread uncertainty about how the US measures and its effects will occur in the economy.

Business Outlook Indicators – indicators of what business outlook looks like under the current economic situation – have fallen to minus 2.42 to its lowest level in a year.

In a quarterly survey, roughly 35% of businesses reported metrics for orders, advance bookings and sales inquiries, with 29% reporting degradation compared to 12 months ago.

The survey added that investment intentions remained silenced, and that the balance of opinions is well below the long-term average.

Analysts and economists say business outlook research will give central banks more teeth and call fees.

The Bank of Canada has stabilized its key rate at 2.75% since April. Only about 12% of current money market bets indicate that they are likely to be cut on July 30th, when banks announce their monetary policy decisions.

Another central bank survey of consumer expectations showed that 64.5% of Canadians were expected to have a recession within the next 12 months, down from 66.5% in the first quarter.

“Trade disputes have led consumers to become increasingly cautious about spending plans and to change their spending behavior,” the report said. Many respondents wanted to spend money on Canadian goods and local holidays.