Small business optimism in Canada collapses to 25-year low

Optimism among Canada’s small and medium-sized firms fell to the lowest level in at least a quarter-century after the US started a trade war with the country, according to the Canadian Federation of Independent Business.

The CFIB’s Business Barometer index fell to 25 this month, according to a flash poll of 1,065 firms taken between March 5 and March 7. That’s the lowest reading on record in data back to 2000.

Nearly 60% of respondents expect their business performance to be somewhat weaker or much weaker 12 months from now, a similar proportion to March 2020, when the shutdowns of the Covid-19 pandemic began.

Firms’ expectations for inflation over the next year are also rising — average price plans jumped to 3.7% in March, from 3% in February. The historical average is 2.2%.

The mounting pessimism and rising inflation expectations coincide with US President Donald Trump’s tariff barrage on Canada. On March 4, the US put levies of 25% on imports on most Canadian goods and 10% on energy, before carving out some exceptions for products covered under the North American free trade deal. Trump later set tariffs of 25% on imports of Canadian steel and aluminum.

Canada has retaliated with tariffs of its own, adding levies on C$60 billion ($41.9 billion) in US goods, including steel, aluminum, consumer goods and food. The federal government has a wider set of tariffs it plans to impose on April 2, when Trump has promised “reciprocal tariffs” on nations around the world.

Economists say a prolonged dispute would send the country into recession — the Bank of Canada has estimated about an 8.5% hit to exports if it lasts a year. Prices are also expected to rise amid a weakening currency, higher import costs and retaliatory tariffs.

The federal government has already pledged billions in aid to help exporters through Export Development Canada. It also announced it would provide “favorably priced loans” of C$500 million to support businesses in sectors that are directly targeted by tariffs, as well as companies in their supply chains.

On a positive note, 86% of firms said their current business situation was good or satisfactory, little changed from February. That may suggest respondents weren’t yet feeling the immediate impact of the tariffs in the days after they were imposed.

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Erik Hertzberg, Bloomberg News