Small business body also believes that private investment will drop
The second quarter of 2025 is set to be a tough one for Canadian businesses as the economy slows down in response to tariffs and continued uncertainty.
The latest Main Street Quarterly report from the Canadian Federation of Independent Business includes estimates and forecasts in association with analytics firm AppEco and suggests that the economy saw growth of 0.8% in the first three months of the year. But a significant contraction is expected for Q2, while inflation is expected to rise to 2.7% during the three month period on an annual basis.
“Small businesses are feeling the pinch,” said CFIB's chief economist and vice-president of research, Simon Gaudreault. “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. That would include reducing taxes and adopting full mutual recognition of each other's rules, permits and regulatory regimes.”
Private investment is likely to drop, having recovered by the end of 2024. The estimates are for Q1 to have seen a major 13.9% drop with a further 19.1% decline in Q2.
“Given how the long-term business confidence is at historically low levels, it's not surprising that small businesses are pausing their capital expenditures,” added Gaudreault. “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.”
Weak demand and rising input costs are impacting many industries but manufacturing and wholesale firms are the hardest hit by low demand due to their trade exposure and many have increased prices.
Agriculture, hospitality, and arts, recreation and information businesses are less able to pass on costs and more likely to absorb them fully and it’s likely that a majority of businesses in these sectors may have to hike prices.
