The Bank of Canada’s third-quarter 2026 Business Outlook Survey showed improved business sentiment and sales prospects, but subsequent responses indicated that renewed trade tensions had reversed some of those gains. About three-quarters of interviews took place before Canada-US trade negotiations broke down on August 21. Evidence collected afterward showed weaker sentiment, export expectations and investment plans, alongside higher inflation expectations as new tariffs and rising oil prices increased cost pressures. Earlier in the quarter, stronger US demand and elevated commodity prices supported export outlooks, while reduced uncertainty helped domestic sales prospects. The share of firms planning or budgeting for a Canadian recession over the next 12 months fell to 6% from 17%. Investment intentions eased slightly but remained robust, supported by demand and spending on technology and automation. Hiring intentions remained below their historical average, with most firms expecting to maintain staffing levels. Most businesses still reported spare capacity, although the share anticipating difficulty meeting an unexpected increase in demand rose to its historical average. Expected growth in input costs and selling prices moderated overall but remained elevated. Roughly half of firms planned to pass on some or all cost increases associated with tariffs and the Middle East war, reflecting improved demand and efforts to restore margins. Responses after the trade talks collapsed pointed to renewed upward pressure on costs and prices, although inflation expectations remained below earlier peaks. Firms were adapting through supply chain changes, automation and export diversification, while some reduced capacity or investment in Canada. Despite the later deterioration, sentiment and export expectations remained considerably stronger than at the height of trade tensions in 2025.

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