Nine in 10 says governments 'must act with urgency to ensure Canada remains competitive and prosperous'
Tariffs imposed by U.S. President Donald Trump have contributed to a deteriorating business outlook among Canadian employers, with many now preparing for worsening economic conditions, according to a new report from KPMG.
More than three-quarters (76 per cent) of Canadian business leaders are bracing for the worst and taking steps to prepare for a potential recession.
To mitigate the effects of a possible downturn, executives identified key priorities for the federal government:
- Remove interprovincial trade barriers and harmonize regulations and credentials (64 per cent)
- Undertake a comprehensive tax review to improve competitiveness (58 per cent)
- Streamline processes and expedite resource and major infrastructure projects (56 per cent).
A prolonged global trade war featuring large and permanent tariffs results will have severe economic consequences for Canada, including a year-long recession, according to a previous Bank of Canada report.
Keeping up with global competitors
Three-quarters (75 per cent) of Canadian business leaders said their companies are investing at levels equal to or greater than their U.S. and global peers, according to KPMG’s survey of 250 firms conducted between May 9 and May 20, 2025.
Furthermore, 92 per cent acknowledged the need to be bolder and increase investment in technology and innovation to build a more resilient, prosperous economy. About nine in 10 (88 per cent) agreed that Canadian companies should not wait for others to adopt emerging technologies.
However, 59 per cent stated they cannot afford to invest in productivity-enhancing technologies due to current economic pressures.
"These results reflect a more ambitious mindset within Canadian business, but they also acutely underscore the difficulties our economy faces right now," said Benjie Thomas, CEO and senior partner, KPMG in Canada.
“Business sentiment has deteriorated, and uncertainty is widespread due to the trade conflict with the United States,” according to a previous Bank of Canada report.
Protecting past investments
Thomas notes that earlier investments are beginning to pay off.
"The investments they have made in the last few years are making a difference, with 75 per cent saying that their digitisation efforts have generated the expected returns and benefits. A further three-quarters found their investments in artificial intelligence boosted their productivity by 10 per cent or more, with over a third saying these investments improved it by over 20 per cent."
However, "there is a big risk that these investments will be stranded if companies don't have the capital to continue to invest," he adds.
More than half (54 per cent) reported they have "already reduced" investment, research and development (R&D) spending, and/or capital expenditures for the next 12 months due to the ongoing U.S.-instigated global trade war. Another 57 per cent said they "will reduce" these expenditures in the year ahead.
Canadian employers are now urging the federal government to step in to protect these investments. Nine in 10 (90 per cent) said governments "must act with urgency to ensure Canada remains competitive and prosperous," adding, "it's essential that our governments don't fall prey to complacency."
More than eight in 10 (82 per cent) business leaders believe eliminating interprovincial trade barriers would improve their company’s efficiency and productivity.
While many Canadian businesses feel the impact of U.S. tariffs, some firms in British Columbia are adapting their operations to stay afloat, according to a previous study.
According to PwC, resilience is “the cornerstone of an organisation to withstand and adapt to disruptions while maintaining continuous business operations.”
"Understanding your critical services and processes and being prepared for potential disruptions is essential for long-term success," says David Stainback, US territory crisis & resilience leader, PwC United States.
Canada-U.S. relations
Recently, Bank of Canada Governor Tiff Macklem called President Donald Trump’s tariffs the “biggest headwind” for the country, according to a Bloomberg report, citing an earlier New York Times article.
Macklem says that the “most important imperative” is for Canada to secure a new trade deal with the U.S., even as domestic firms work to diversify their markets.
However, KPMG’s report found that 75 per cent of business leaders no longer view the U.S. as a reliable market. Nearly eight in 10 (79 per cent) are actively diversifying their export destinations to reduce dependency on the U.S.
Over two-thirds (68 per cent) are investing in marketing and forging new international relationships. Even if trade tensions ease, 90 per cent of respondents said they “will still diversify to other markets,” the research shows.
