Overview of Business Sentiment#
A recent survey by the Bank of Canada indicates that business sentiment in Canada saw a slight improvement in the first quarter of 2026. This uptick brings confidence levels back to where they were before the trade conflict with the United States began.
Key Findings from the Survey#
Conducted between February 5 and 25, the Business Outlook Survey revealed that the percentage of firms anticipating a recession in Canada over the next year dropped significantly from 22% to just 9%. This marks the lowest level of recession concerns since the survey started in 2023. Additionally, fewer businesses reported that trade tensions were negatively affecting their sales outlook, while more firms noted that public spending is positively influencing their sales.
Investment Intentions and Hiring Plans#
Investment intentions have also shown improvement for the second consecutive quarter, with the balance of opinion now exceeding the long-term average. Nearly half of the surveyed firms expect to hire more staff in the coming year, aligning with historical averages for hiring plans. Notably, this increase in investment intentions is primarily from firms that are not impacted by trade tensions.
Expectations for Prices and Wages#
Firms surveyed before the outbreak of war anticipate that both input prices (the cost of materials and services they need) and selling prices will remain stable over the next year. On average, businesses expect wage growth of about 3.5%, although this is projected to be slower than the previous year. Despite a slight uptick in inflation expectations following the war, overall expectations remain lower than the peak observed during the trade conflict in early 2025.
Impact of the Middle East War#
Follow-up calls conducted from March 18 to 27 indicate that many firms are already experiencing increased input costs due to rising prices for energy, fertilizer, and freight linked to the Middle East conflict. However, the central bank noted that most firms' outlooks for sales, investment, and employment have remained largely unchanged.