Lewis Hamilton's Mercedes team have said Ferrari are now the favourites to win this year's Formula One championship.
Hamilton, chasing a fourth world title, heads into the seventh round of the championship in Canada - a grand prix he has won on five occasions - 25 points adrift of Sebastian Vettel.
Mercedes, winners of the last three constructors' championships, are also 17 points behind Ferrari in this season's fight for the team title.
Vettel led home a controversial Ferrari one-two ahead of team-mate Kimi Raikkonen at the last round in Monaco, while Hamilton managed only seventh following a disappointing weekend for the Briton.
"It's painful, but we are not the favourites for this year's championship," Wolff said. "At the moment it's Ferrari.
"They have a very strong package and we need to rise to the challenge to prove once again that we are the team to beat. There are still 14 races left and everything is completely open.
"We're looking forward to Montreal and the chance to bounce back with a strong result and hopefully producing valuable answers to some tough questions in the process."
Ferrari were accused of manipulating the result at Monaco in favour of Vettel after the German comfortably passed team-mate Raikkonen in the only round of pit stops.
Indeed Hamilton claimed after the race that it was the clearest evidence yet that Vettel holds the number one status within the Italian team.
Vettel is 62 points clear of Raikkonen while Hamilton and his Mercedes team-mate Valtteri Bottas are separated by 29 points.
Wolff insisted Mercedes will not adopt team orders.
"We have two excellent drivers and we will hold true to our philosophy of letting them race each other to drive the team forward, even if sometimes it can be difficult because you can't always have the one who is ahead in the championship winning," Wolff said.
"I'm expecting an interesting weekend in Canada. It could be a tricky race for us in terms of the layout of the track. But, equally, it's a circuit that suits both of our drivers.
"Lewis has won a number of times in the past and Valtteri has always gone strongly there for Williams. It will be about doing our homework right to give the drivers the car they need to succeed.
"We've had bruising weekends before and it's about showing resilience and getting up after falling. We know that this season is a marathon, not a sprint."