Bank of Canada survey shows weaker business sentiment and higher price expectations in second quarter 2026

The Bank of Canada published its second-quarter 2026 Business Outlook Survey showing that overall business sentiment deteriorated after improving over the previous three quarters, as the war in the Middle East and higher fuel-related costs weakened demand and lifted uncertainty. The share of firms planning or budgeting for a recession in Canada over the next 12 months rose to 17% from 9% in the first quarter. The survey also introduces new Business Outlook Survey activity and price indicators, which diverged this quarter as activity weakened while price pressures increased. Sales outlooks softened slightly and employment intentions fell below their historical average, particularly outside the Prairies, where firms cited weaker consumer and business spending, trade-related uncertainty and pressure on discretionary purchases from higher gasoline prices. By contrast, export outlooks improved to well above their historical average, supported by stronger commodity demand, fewer reports of hesitancy from US customers and demand linked to US artificial intelligence data centre construction. Investment intentions remained high, helped by public spending and elevated commodity prices, especially in oil and gas, while most firms continued to report spare capacity and limited labour shortages. Expectations for input and selling prices increased considerably, and firms expected inflation over the next one to two years to be in the 3% to 3.5% range, although one-year-ahead inflation expectations declined later in the quarter after the mid-June interim agreement between the United States and Iran.