The Canadian Federation of Independent Business (CFIB) expects to see negative growth in Canada’s economy as businesses face low confidence driven by U.S. President Donald Trump’s tariff war and its impact on supply chains.
The advocacy group, representing Canadian owners of small and mid-size businesses, released a report Thursday, based on responses from 719 CFIB members.
“What we found out with this new quarterly update is that the economy, yes, is going to contract in the second and third quarter, according to our forecasting model,” Simon Gaudreault, CFIB’s chief economist and vice-president of research told BNNBloomberg.ca in a Thursday interview. “It is, however, a bit less of a dark picture than we might have expected at the beginning of the year, let’s say in early 2025 when we we were looking at the upcoming year and all of the talks about the trade war.”
Statistics Canada’s consumer price index (CPI), which measures inflation, slowed to 1.8 per cent in the second quarter and is expected to rise slightly to 1.9 per cent in the third quarter. The CFIB states the overall deceleration in prices was mainly driven by falling energy costs and lower prices for travel services, while increases in food and shelter costs provided some upward pressure.
The CFIB said gross domestic product (GDP) fell by 0.8 per cent in the second quarter and is expected to decline further by another 0.8 per cent in the third quarter. It said the contraction reflects persistently low business confidence, driven by trade tensions, and weakness in manufacturing, particularly in the transportation, machinery, and oil and gas sectors.
Trade tensions causing high uncertainty
The group highlighted a Statistics Canada report that notes 48 per cent of businesses experienced supply chain disruptions over the past three months, and 64 per cent expect conditions to worsen.
The CFIB anticipates private investment will nosedive by 13.0 per cent in the second quarter and further drop by 6.9 per cent in third quarter. The national private sector job vacancy rate held steady at 2.8 per cent in the second quarter representing 397,00 unfilled positions.
“A lot of businesses are currently hitting the pause button on their investment and hiring plans because of this great uncertainty,” said Gaudreault. “And of course, this is not good for the next little while. It means that we’re going to create some kind of, backlog, and we’re hoping to see the situation with the U.S. resolve and add at least some clarity brought back into the mix.”
The highest vacancy rates were in personal services and construction. On a yearly basis, information, arts and recreation (-0.8), agriculture (-0.8), personal services (-0.6), and natural resources (-0.6) saw the biggest drop in their vacancy rates. Manufacturing was the only sector reporting an increase (+0.1). Retail sales slowed in the second quarter, growing by 4.6 per cent.
The CFIB said many businesses and organizations wanted to place orders ahead of the tariffs’ implementation. They said growth is expected to moderate to increase by 2.0 per cent in third quarter and businesses are pivoting their practices to mitigate tariff impacts.
“You have to take into account the fact that even though some uncertainty remains, businesses are not just staying put there, sitting on both of their hands,” said Gaudreault. “Like their their job definition as an entrepreneur and as people in the private sector is to find solutions to the different challenges. I’m not saying that they found solutions to everything, but in the past few months, a lot of them have pivoted, have used their creativity or have adapted, and that, to a certain extent, can mitigate some of the negative impacts. So that may explain why, also, we are not seeing very bad numbers like we were maybe expecting earlier this year. Yes, there’s the fact that a lot of businesses have stockpiled and purchased in advance, early in the year, so showing more economic strength maybe than is sustainable in the long term.”
The organization said wholesale and manufacturing businesses reported the highest impact from Canada-U.S. border delays, at 42 per cent and 40 per cent respectively. A proportion of 39 per cent of firms in personal services also reported disruptions, largely due to delays affecting repair shops for vehicles, household and commercial goods. Significant shares of businesses operating in retail (36 per cent) and construction (35 per cent) reported border delays, showing that supply chain bottlenecks affect both distribution networks and project-based work.
In contrast, service-oriented sectors reported fewer disruptions as they rely less on cross-border logistics.
Facing growing tariff-related pressures at the border, the CFIB said 62 per cent of small and medium enterprises have shifted to domestic markets. Nonetheless, supply chain disruptions remain widespread, revealing that the problem is not limited to international trade, but affecting internal logistics as well.
