A survey of small businesses indicated the economy will record a significant contraction in the second quarter this year following muted growth in the first three months of the year, the Canadian Federation of Independent Business (CFIB) said.

Following growth of 0.8 per cent on an annualized basis in the first quarter, the economy is forecast to contract by 5.6 per in the second quarter, according to CFIB’s survey.

Private business investment, after seeing a good recovery at the end of 2024, is estimated to record a major drop of 13.9 per cent in Q1, with the Q2 forecast even lower at -19.1 per cent.

Based on the survey, SMEs are under growing pressure from weak demand and rising input costs. Exporters are the least able to pass on tariff-related costs, while importers have more flexibility to adjust prices, CFIB said. Other conclusions:

Manufacturing and wholesale firms are the hardest hit by low demand due to their trade exposure.

Arts, recreation and information businesses, along with agriculture and hospitality, are less able to pass on costs and more likely to absorb them fully.

One-third of wholesale firms have already increased their prices. Moreover, two-thirds of firms in hospitality and construction plan to increase their prices once supplier costs stabilize.

“Small businesses are feeling the pinch. The raging trade war will likely drive up the costs of doing business and lead to inflation,” CFIB chief economist Simon Gaudreault commented on the survey findings. “Given how the long-term business confidence is at historically low levels, it's not surprising that small businesses are pausing their capital expenditures. It's nearly impossible for owners to plan expansions or investments when they're not sure if their business will even be open in six months.

“Governments at all levels urgently need to balance the economic environment, so SMEs have the capacity to withstand the impacts of the trade war,” Gaudreault added.