The Canadian economy is anticipated to plunge in the second quarter of 2025, according to the Canadian Federation of Independent Business’s Q1 2025 Main Street Quarterly report.
Economic growth in the first quarter is set to be weak; as per CFIB’s estimates and forecasts, the economy grew by 0.8 percent. Total consumer price index inflation increased to 2.4 percent in this period; in Q2, this inflation is expected to rise to 2.7 percent annually.
Private investment, which recovered strongly at the end of 2024, is anticipated to nosedive by 13.9 percent in Q1; by Q2, investment is estimated to fall by 19.1 percent. The report noted that small to medium-sized enterprises are plagued by sluggish demand and increasing input costs.
“Small businesses are feeling the pinch. The raging trade war will likely drive up the costs of doing business and lead to inflation. While the Bank of Canada maintained its key interest rate, it will take bold policy changes for small businesses to feel meaningful relief,” said Simon Gaudreault, CFIB’s chief economist and vice-president of research, in a statement. “That would include reducing taxes and adopting full mutual recognition of each other's rules, permits and regulatory regimes.”
While importers can adjust prices in response to tariffs, exporters struggle to pass on the costs. Trade exposure has stifled demand in the manufacturing and wholesale sectors; a third of wholesale firms have jacked prices up. Moreover, the industries taking on the cost burden entirely are the agriculture, hospitality, and arts, recreation and information businesses sectors. Two-thirds of hospitality and construction firms intend to raise prices with the stabilization of supplier costs.
“Given how the long-term business confidence is at historically low levels, it’s not surprising that small businesses are pausing their capital expenditures. It’s nearly impossible for owners to plan expansions or investments when they’re not sure if their business will even be open in six months. Governments at all levels urgently need to balance the economic environment, so SMEs have the capacity to withstand the impacts of the trade war,” Gaudreault said.
The CFIB’s estimates and forecasts were made in partnership with economic and strategic analysis consulting firm AppEco.