The Confidence Crisis

After plunging to an all‑time low of 25.0 in March, Canada’s CFIB Business Barometer® long‑term confidence index has only modestly recovered to 40.0 in May—still far below the breakeven mark of 50 where optimism outweighs pessimism

CFIB

. In practical terms, this means that a large majority of SMB owners expect weaker performance over the next year.

Inflation Fears Dominating the Agenda

Nearly half of Canadian businesses now view inflation as their top obstacle for the coming three months. According to Statistics Canada, 49.3% of firms cited inflation as a constraint—up markedly from prior quarters—making it the most‑commonly expected hurdle in Q2 2025

Statistics Canada

Raw materials costs were singled out by 61.9% of those concerned about input prices, a jump of almost 18 percentage points year‑over‑year

Statistics Canada

Meanwhile, 65% of businesses surveyed by the Bank of Canada expect their overall costs to rise, and 40% plan to pass some of those increases on through price hikes

Reuters

Recession Worries on the Rise

Apprehension about an economic downturn is creeping back into boardrooms. A recent Bank of Canada survey found that 32% of firms now see a recession as likely within the next 12 months—double the share from just two quarters earlier

Reuters

Operational Cost Concerns Beyond Inflation

27.7% of businesses flagged the cost of inputs—labor, capital, raw materials, energy—as a pressing obstacle.

Supply‑chain bottlenecks and interest‑rate uncertainty continue to freeze expansion plans: a BDC survey in January reported many SMEs had literally put growth initiatives “on ice” despite improved balance sheets, citing economic uncertainty as the chief deterrent

BDC.ca

Regional Variations

Confidence and fear are not evenly distributed across Canada:

British Columbia SMEs recorded a health index of just 95 points in Q1 2025—below the national average of 99.3—driven by soft consumer demand

Business in Vancouver

Conversely, Manitoba and Saskatchewan topped the chart at 104 points, buoyed by stronger commodity‑linked activity

Business in Vancouver

What This Means for SMB Owners

Cash‑flow vigilance is paramount: with rising costs and recession risk, maintaining liquidity buffers will be critical.

Pricing strategies need careful calibration: roughly four in ten firms plan to increase prices, but consumer pushback could exacerbate demand weakness.

Risk‑management planning should account for further rate cuts or hikes, depending on how inflation trends evolve relative to the Bank of Canada’s 2% target.

Looking Ahead

While core inflation appears to be moderating toward the Bank of Canada’s target, lingering wage pressures and global trade frictions could reignite cost concerns. SMBs that lean into scenario planning—modeling both moderate growth and mild recession outcomes—will be best positioned to navigate the uncertainty.