Results of the fourth-quarter 2025 survey | Vol. 22.4 | January 19, 2026
The Business Outlook Survey was conducted by in-person, video and phone interviews from November 6 to 26, 2025. The Business Leaders’ Pulse is conducted online every month; the latest results are from October, November and December 2025. This quarter’s publication also includes results from special consultations with business leaders and industry experts in the oil and gas sector.
Overview
- Business sentiment is subdued but remains above its survey low from the second quarter of 2025.
- Firms reported that sales growth has been weak over the past year largely due to the economic effects of trade tensions. They expect sales growth to improve slightly going forward.
- Export sales growth is expected to be modest. A small but increasing share of businesses reported higher sales to non-US markets in response to trade tensions with the United States.
- Most firms did not report binding capacity constraints or labour shortages. With demand expected to remain soft, the majority of businesses plan to maintain or decrease current staffing levels.
- Investment intentions improved slightly, but firms are prioritizing spending on routine maintenance, partly because of continued trade-related uncertainty. In the oil sector, investment is expected to decline in 2026 because of low oil prices.
- Businesses reported fewer pressures than last quarter from tariff-related cost increases, though these pressures remain prevalent. Most firms do not anticipate substantial increases in selling prices.
- Firms’ inflation expectations remain roughly stable between 2.5% and 3%.
Business sentiment remains subdued
Trade-related uncertainty and the broad economic effects of tariffs continue to weigh on the outlooks of many firms. Businesses continue to cite uncertainty surrounding financial, economic and political conditions, slowing demand, and cost pressures as their most pressing concerns. Consistent with these ongoing concerns, sentiment remains subdued (Chart 1).
Chart 1: Sentiment is subdued but remains above the 2025 survey low
Meanwhile, the share of firms planning or budgeting for a recession in Canada over the next 12 months has eased from 33% to 22%. This is the lowest level reported in 2025, though it remains above 2024 levels.
Firms anticipate modest sales growth following a weak year
Firms reported weak sales growth over the past 12 months, with one-third of businesses citing a decline in their sales volumes. This share is above the historical average of about one-quarter.
However, the balance of opinion on future sales indicators has turned positive (Chart 2)—a greater number of firms see improved indicators than the number of firms that see deteriorated ones. Still, the balance remains below its historical average, suggesting only modest growth. While businesses continue to report negative effects—some coming directly from tariffs but even more coming indirectly from trade tensions—they do not expect these effects to worsen further.
Chart 2: Indicators of future sales have improved but remain below average
About the same number of firms as last quarter reported being strongly impacted by US trade policies. Compared with all other firms, those that said they were being strongly impacted (Chart 3, blue bars) cited:
- weaker sales levels over the past 12 months
- weaker future sales outlooks
Impacted firms often attribute weakness in domestic sales to the broad spillover effects from tariffs and trade-related uncertainty, such as:
- lower business spending (e.g., on insurance, advertising and construction) or postponement of purchases because of ongoing trade uncertainty
- reduced orders from business clients in sectors subject to US tariffs (e.g., firms in the steel, aluminum and auto sectors)
- pessimistic outlooks among some businesses reliant on household spending, including firms in the housing sector
Firms not strongly impacted by US trade policies show modest past sales growth and positive expectations for future sales (Chart 3, yellow bars). They attribute their views to a combination of two factors: steady demand from clients—consumers and businesses—who are less exposed to trade tensions, and their own efforts to grow their business. These firms credit their sales performance to factors such as offering less-expensive products to financially constrained households, serving higher-income consumers, or providing services and technologies with broad market appeal to limit dependence on any one sector.
Firms anticipate modest sales growth following a weak year
Firms reported weak sales growth over the past 12 months, with one-third of businesses citing a decline in their sales volumes. This share is above the historical average of about one-quarter.
However, the balance of opinion on future sales indicators has turned positive (Chart 2)—a greater number of firms see improved indicators than the number of firms that see deteriorated ones. Still, the balance remains below its historical average, suggesting only modest growth. While businesses continue to report negative effects—some coming directly from tariffs but even more coming indirectly from trade tensions—they do not expect these effects to worsen further.
Most exporting firms said the goods they sell to the United States are compliant with the Canada-United States-Mexico Agreement and are therefore exempt from tariffs. Even so, businesses reported that they face obstacles to growth in export sales, such as:
- soft US demand
- US customers hesitating to use Canadian suppliers due to uncertainty around trade policy
- firms’ own hesitancy to enter the US market
Reflecting these challenges, expectations for export sales growth remain modest.
Still, despite noting weaker sales to US customers due to trade tensions, most exporters to the United States have not diversified into non-US markets. Firms often cited barriers to diversification, such as needing to invest in specialized equipment or to comply with regulatory requirements as well as the transportation costs associated with accessing markets distant from Canada. Some exporters already active in non-US foreign markets are increasing their focus outside the United States to minimize their exposure to trade policy uncertainty. This is reflected in the small but growing share of exporting firms that reported higher sales to non-US customers (Chart 4).
Chart 4: A small but growing share of exporters reported increased sales to non-US markets
Firms’ investment and hiring plans remain held back by uncertainty and soft demand
Given soft demand, most firms reported that their current physical capacity and workforce are sufficient. Further, the share of businesses that said they would have difficulty meeting an unexpected increase in demand remains below the historical average for the fifth consecutive quarter (Chart 5, yellow line). Businesses said they can find workers more easily now than a year ago, and although the share of firms that reported binding labour shortages increased, it remains below its historical average (Chart 5, green line).
Chart 5: Most firms reported no capacity constraints or labour shortages
Firms’ investment intentions improved this quarter, with the balance of opinion nearing its long-term average (Chart 6). Heightened uncertainty remains a major factor holding back investment plans, but fewer firms than in recent quarters are saying a weak outlook for demand is restraining investment. Most businesses remain focused on investing in routine maintenance (Chart 7).
Chart 6: Firms’ investment intentions are nearing their historical average
Chart 7: In their investments, firms continue to prioritize routine maintenance over expansion
Both soft demand and ongoing tariff uncertainty are weighing on firms’ plans to expand their workforce. Most businesses do not intend to increase the size of their workforce over the next 12 months, and the share planning outright staff reductions rose this quarter to its highest level since 2016 (Chart 8). An increasing number of firms expect they will lay off staff.
Chart 8: More firms than last quarter are planning to reduce the size of their workforce
Firms expect modest increases in their costs and selling prices
Expectations for wage growth over the next 12 months have roughly stabilized after trending downward over the past few years (Chart 9) as cost-of-living adjustments eased. Firms strongly affected by tariffs and trade tensions expect lower wage growth than other firms. Several affected firms cited weakening performance and profitability as a constraint on planned wage growth.
Chart 9: Wage growth expectations are stabilizing after trending down for three years
Both the share of firms expecting significant increases in their input prices and the share anticipating significant increases in their selling prices decreased from last quarter and are near their lowest levels since the beginning of the series in 2016 (Chart 10).
Tariffs and trade-related costs remain a primary source of upward pressure on expectations for input prices, but fewer firms cited these costs this quarter than in previous quarters. Some businesses are taking steps to limit cost pressures, including sourcing inputs from different countries. Expected increases in commodity prices—partly reflecting a stabilization in oil prices following recent declines—are also an important driver of businesses’ input price expectations this quarter.
The pass-through of tariff-related costs is no longer putting upward pressure on firms’ pricing decisions. Yet, overall, weak demand conditions are holding back fewer firms than last quarter from increasing their prices, and the pass-through of higher commodity prices is positively influencing selling prices.
Chart 10: Fewer firms than last quarter expect significant increases in their input and selling prices
Expectations for inflation one year from now continue to fluctuate around 3% (Chart 11). For all other horizons, inflation expectations remain steady between 2.5% and 3%. Although tariffs and trade policies persist as the primary drivers of inflation expectations, fewer firms noted them this quarter than in recent quarters. Compared with last quarter, more firms cited increasing government spending as a driver of inflation.
Chart 11: Firms’ inflation expectations remain above their long-run average
Box 1: Low oil prices are weighing on sentiment in the oil and gas sector
In November 2025, Bank of Canada staff held consultations in Calgary with leaders from the oil and gas sector and industry experts. Participants included producers of natural gas, conventional oil and crude oil from oil sands as well as pipeline and energy service providers.
Firms anticipate oil prices will remain at current levels through 2026
Firms expect oversupply of global oil to keep the price of West Texas Intermediate (WTI) around US$60 per barrel in 2026, with a gradual increase toward US$66 per barrel over the next two to three years. Supported by the Trans Mountain Expansion (TMX) pipeline, in 2025 the price differential between WTI and Western Canadian Select (WCS) narrowed to near US$12 for most of the year. It is expected to stay around that level over the next one to two years. Firms believe that current and proposed capacity improvement projects for existing pipelines will help support a narrower spread. Several participants noted that improved market access through TMX has increased the use of Canadian heavy oil in petrochemical production in Asia, supporting WCS pricing.
The Alberta Energy Company price (AECO-C)—a Canadian benchmark for natural gas prices—is expected to stay around Can$2.50 per gigajoule in 2026, supported by demand from LNG Canada Phase 1 (a liquefied natural gas [LNG] export terminal in British Columbia). Many firms remain optimistic about the long-term outlook for natural gas. Some see it as the fuel of the future, particularly as developing countries transition from coal to gas. Over the short term in 2026, LNG exports and strong demand from oil sands producers for natural gas condensate continue to support the production outlook for natural gas producers.
Conventional oil producers face increased pressure, while most oil sands projects remain viable
Low oil prices are weighing on sentiment, prompting firms to streamline production and tighten cost structures. This is especially true for conventional oil producers,1 who must reinvest and drill new wells frequently to maintain production and who require break-even prices to average around US$57 per barrel for WTI.2 Those producing heavy oil sold at WCS prices rather than WTI prices are more sensitive to lower prices and are likely to curtail drilling programs within weeks in response to price weakness.
Meanwhile, oil sands projects have an average break-even price of about US$50 per barrel for WTI, based on Bank staff calculations and industry estimates. As a result, oil sands production, which accounts for the majority of Canada’s crude oil production, generally remains viable at currently expected price levels. The resilience of oil sands projects reflects their economies of scale, the long-term nature of operations, available TMX pipeline capacity and a narrower WTI–WCS price differential.
Capital expenditures are expected to decline in 2026
Regarding plans for 2026, recent announcements by firms in the sector indicate a 1.7% decline in nominal capital expenditures (Chart 1-A). Despite a reduction in investment plans, industry production is expected to rise. This is driven mainly by natural gas and oil sands output, where efficiency gains—partly due to consolidation—and available export pipeline capacity continue to support higher production.
Chart 1-A: The energy sector plans to reduce its capital expenditures in 2026
When discussing their longer-term plans, oil and gas producers emphasized the importance of export infrastructure. Many highlighted TMX’s positive impact, which has opened new markets for Canadian oil, raising exports outside the United States from under 3% to over 9%, primarily to Asia, and which has reduced reliance on US refineries.
Endnotes
- 1. For reference, during the first nine months of 2025, of total oil and gas production (in barrels of oil equivalent), approximately 20% was conventional oil, 40% was crude oil from oil sands and 40% was natural gas. In revenue terms, industry revenues are more heavily influenced by oil, reflecting its higher price.[←]
- 2. Break-even prices are reported as segment-level averages for conventional oil and oil sands producers. A range of firms have break-even prices that are higher or lower that the segment-level averages.[←]
Survey results report opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.
The Bank of Canada’s Business Outlook Survey is conducted by the Bank’s regional office staff through interviews with the senior management of about 100 firms selected to reflect the composition of the gross domestic product of Canada’s business sector. Additional information on the survey and its content is available on the Bank of Canada’s website.
The Bank of Canada’s Business Leaders’ Pulse is a survey of 700 to 1,000 Canadian business leaders who respond to one of three short online questionnaires each month. For more information on the Business Leaders’ Pulse, see T. Chernis, C. D’Souza, K. MacLean, T. Reader, J. Slive and F. Suvankulov, “The Business Leaders’ Pulse—An Online Business Survey,” Bank of Canada Staff Discussion Paper No. 2022-14 (June 2022).