By Promit Mukherjee and David Ljunggren
OTTAWA, Oct 19 (Reuters) - Canadian firms reported their outlooks had deteriorated after the collapse of trade talks with the United States but sentiments remained considerably stronger than at the peak of tensions last year, the Bank of Canada said on Monday.
A survey of around 340 business leaders in September showed that since the talks broke down on August 21, new US tariffs and Canadian counter tariffs had weighed on their outlooks.
The bank said this suggested "a moderation rather than a fundamental shift in firms' outlooks".
A separate Business Outlook Survey for the third quarter, which was largely carried out before the talks collapsed, showed overall sentiment had improved.
But both surveys pointed to higher inflation expectations amid increase input costs and elevated selling prices due to trade tensions and the Middle East crisis.
The studies help the BoC decide the trajectory of inflation and feed into its decision for the monetary policy.
Money markets are pricing in a hold in interest rates by the BoC on October 28, but see a 25 basis point rise in December.
Governor Tiff Macklem says while headline inflation has risen, this is primarily due by higher energy costs and there are so far no signs of a spillover into other components.
But he also says he is ready to hike rates if higher prices show signs of feeding into the broader economy.
The leaders' survey reported weaker export sales, the BoC said, adding that the improving sentiment at the beginning of the third quarter had partially reversed.
"Nevertheless, sentiment and expectations remain considerably stronger than at the height of trade tensions in 2025," it added.
In the Business Outlook Survey, the central bank said while there were some improvements in demand, firms' hiring intentions remained soft, but most firms intend to retain existing employees. Expectations for wage growth are largely unchanged, the survey noted.
The business outlook indicator, a metric of prospects under current economic conditions, edged up to -0.33 in the third quarter from -0.38 in the prior three months.
A separate survey by the central bank on consumer expectations showed that more than 50% of consumers surveyed expect a recession over the next 12 months and expectations for five-year inflation had also risen.
((Reuters Ottawa bureau))
Keywords: CANADA CENBANK/
