The Bank of Canada has just released the results of its second-quarter Business Outlook Survey, offering a snapshot of current business sentiment and market expectations. While overall sentiment remains subdued, there are signs of gradual improvement compared to earlier this year—particularly regarding concerns over tariffs, which appear to be easing.

The survey revealed a noticeable shift in how businesses perceive the impact of tariffs. While nearly two-thirds of companies previously expected tariffs to increase operating costs, that figure has now dropped to about one-third. Export-oriented firms, in particular, have grown less wary of global market uncertainty, with many reporting that the actual impact of current tariff levels on their operations has been limited. This signals that businesses are learning to adapt to the new trade environment and aren’t as pessimistic as before.

Despite this moderate relief on the tariff front, global trade instability remains a top concern. About 28% of businesses are still preparing for a possible recession. That’s a slight drop from 32% last quarter, but still above last year’s levels. Most companies are taking a cautious view on future sales, citing weak domestic demand and sluggish economic growth. Manufacturers and auto-related sectors are among the most conservative in their outlook.

As for hiring and capital investment, most businesses are sticking with a wait-and-see approach. Employment levels are expected to remain steady over the next year, and capital spending is mainly focused on maintenance rather than expansion. Even though wage pressures have roughly returned to pre-pandemic levels, about half of the surveyed firms still believe tariffs will drive up business costs. With consumer demand soft, companies are finding it difficult to pass those added costs on, further squeezing profit margins.

When it comes to inflation expectations, businesses are beginning to scale back their short-term forecasts. June’s inflation projection has dropped to 2.9%, pointing to a cooling market and weakening consumer spending. However, consumers themselves remain cautious: expectations for inflation are still above 4%, suggesting lingering concerns about the trajectory of living costs.

Looking ahead, while the worst-case fears around tariffs have somewhat subsided, uncertainty isn’t going away. The Bank of Canada is set to announce its next interest rate decision on July 30. The market consensus is that a rate cut remains unlikely in the short term, even as both businesses and households continue to hope for more supportive policies.

For Hong Kong investors and businesses with ties to Canada, it’s worth keeping a close eye on developments in trade policy and interest rate trends. These factors will directly influence business strategies and capital allocation decisions in the near future.