Business Economy · Historical report

Bank of Canada survey finds business sentiment weakened in second quarter

The Bank of Canada reported softer sales outlooks and weaker hiring intentions, while investment plans remained strong and export outlooks improved.

By Grant Sullivan · Source dated July 6, 2026 · Published July 22, 2026

Survey points to softer sentiment and sales outlooks

In its second-quarter 2026 Business Outlook Survey, published July 6, the Bank of Canada reported that overall business sentiment had deteriorated after improving over the previous three quarters. The survey interviews were conducted from May 1 to 21, 2026.

The share of firms planning or budgeting for a recession in Canada over the following 12 months increased from 9% in the first quarter to 17%. The Bank said this remained below the levels recorded throughout 2025.

More firms expected their sales growth to slow, and the balance of opinion on future-sales indicators moved to just below its historical average. The report associated the softer outlook with higher fuel-related costs and geopolitical uncertainty in the Middle East.

Regional and sector differences were pronounced

The Bank introduced separate activity and price indicators in this release. The activity indicator declined largely because of a weaker sales outlook, while the price indicator increased with expectations for higher inflation and stronger growth in input and selling prices.

Firms in the Prairies reported stronger sales, investment and hiring outlooks than in the first quarter. The Bank attributed much of the improvement to firms in or linked to the oil sector, where higher oil prices supported outlooks.

Outside the Prairies, firms reported weaker business-activity outlooks. The report cited uncertainty and the effects of elevated fuel costs on household spending and business demand.

Investment and exports remained areas of strength

Investment intentions were broadly unchanged from the first quarter and remained at a high level. Routine maintenance was the most common reason for investment spending, while productivity-related plans, including equipment upgrades and artificial-intelligence integration, remained more prevalent than in recent years.

Export outlooks improved to well above their historical average. The Bank cited fewer reports of trade tensions constraining exports, elevated prices for commodities including oil and metals, and demand related to artificial-intelligence data-centre construction in the United States.

Employment intentions weakened slightly to below their historical average, especially among firms outside the Prairies. A majority of firms reported that their physical capacity and workforce were sufficient, while reports of binding labour shortages declined.

Price and inflation expectations increased

Firms’ expectations for growth in non-labour input costs and selling prices over the next 12 months increased considerably. Nearly three-quarters of firms reported cost increases related to the war in the Middle East, largely through fuel, shipping and transportation expenses.

Among firms reporting fuel and non-fuel cost increases related to the conflict, roughly 40% were not passing the increases on to customers and 25% were passing on only part of them. About one-third expected to fully pass on the increases over the next 12 months.

Average inflation expectations over the next two years increased from the first quarter. Firms expected inflation one year ahead and over the next two years to fall in a range of 3% to 3.5%, although one-year-ahead expectations had declined from their April peak.