A new quarterly report from the Canadian Federation of Independent Business (CFIB) suggests the Canadian economy is expected to see negative growth in Q2 and Q3 of 2025.

The Q2 2025 edition of CFIB’s Main Street Quarterly report finds that GDP growth fell 0.8% in 2025 Q2 and is expected to decline further by 0.8% in Q3. It says 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.

Meanwhile, CPI inflation slowed to 1.8% in 2025 Q2 and is expected to rise slightly to 1.9% in Q3. 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.

Additionally, private investment contracted by 3.1% in 2025 Q1, and persistent uncertainty is constraining business investment plans, with estimates pointing to a 13.0% drop in Q2 and a further 6.9% contraction in Q3. This, says CFIB, reflects a collapse in capital spending amid deteriorating confidence, especially in goods-producing sectors facing global trade instability and volatile input prices.

Finally, payroll employment growth reported a modest gain of 0.4% in Q1. However, employment is expected to contract by 1.1% in Q2, followed by a more moderate decline of 0.8% in Q3. This pattern aligns with the broader economic slowdown.

A special analysis on the impact of tariffs on supply chains highlights that most businesses expect long-term supply disruptions, both abroad and domestically. More firms have been affected by supply chain challenges since March 2025, with wholesale and manufacturing sectors most impacted by Canada-U.S. border delays.

The quarterly sectoral profile reveals that the lack of optimism in the wholesale industry reflects the significant decrease in the number of wholesale businesses with employees and also the steep decline in self-employed over the past decade. They are facing major challenges and are adjusting their pricing strategies in response to supply chain disruptions, rising input costs, and trade uncertainty.

“While we forecast a contraction in the economy, at the same time certain indicators point out that it is normalizing in some ways,” says CFIB’s chief economist and vice-president of research, Simon Gaudreault. “Inflation remains stable which puts us in a favourable position to contemplate easier monetary policy for the second half of the year. However, with Canada seeing a 1.9% inflation and unexpectedly adding jobs in June, the Bank of Canada may now decide to maintain its interest rate on July 30.

“The “one step forward, one step back” trade situation is driving low business confidence, translating into paused or cancelled investments. As trade tensions drag on, more businesses will be slowly adjusting to tariff threats and findings alternatives.”