Results of the first-quarter 2026 survey | Vol. 23.1 | April 20, 2026
The Business Outlook Survey (BOS) was conducted by in-person, video and phone interviews from February 5 to 25, 2026, before the war in the Middle East began. The Business Leaders’ Pulse is conducted online every month; the latest results are from January, February and March 2026. This quarter’s publication also incorporates results from follow-up calls with BOS participants conducted between March 18 and 27, after the start of the war in the Middle East, with firms selected based on their exposure to the economic effects of the war. These results are supplemented by targeted consultations with industry leaders in highly affected sectors.
Overview
- Survey evidence, gathered mostly before the war in the Middle East, shows that business sentiment improved slightly from last quarter to levels similar to those from before the trade conflict with the United States began.
- Firms expect improvements in sales growth. Fewer firms than last quarter reported that trade tensions are impacting their sales outlook, while more said public spending is supporting sales.
- Investment intentions improved, and hiring intentions have recovered from weak levels. This reflects improving domestic demand and a lessening of the effects of uncertainty. Nevertheless, some firms reported that trade tensions are dampening their plans to invest.
- Businesses expect average-sized increases in input and selling prices. Survey results from before the start of the war in the Middle East indicate that firms largely expect stable price growth over the next 12 months.
- Firms’ one-year-ahead inflation expectations have ticked up slightly, driven by the views of those surveyed in March after the outbreak of war in the Middle East. However, expectations at all horizons remain below the peak reached during the height of the trade conflict in early 2025.
- Results of follow-up calls suggest that many firms are already facing higher input costs due to rising prices for energy, fertilizer and freight linked to the war in the Middle East. Others expect increases in the coming months as these costs are passed on by suppliers. Most firms’ outlooks for sales, investment and employment are roughly unchanged.
Business sentiment improves as fewer firms report drag from trade tensions
Business sentiment continued to improve from the low levels seen in 2025, when concerns around trade tensions and tariffs were at a peak (Chart 1). Consistent with this, the share of firms planning or budgeting for a recession in Canada over the next 12 months has declined from 22% to 9%. This is the lowest level since the series began in 2023.
Chart 1: Business sentiment continues to recover from spring 2025 lows
Alongside these improvements, trade tensions are weighing less on firms’ outlooks. Compared with recent quarters, fewer businesses reported impacts on their expected sales or costs (Chart 2).1 As a result, firms began the first quarter of 2026 better positioned than they were in late 2025 to face the economic shock associated with the war in the Middle East.
Chart 2: Fewer firms report that trade tensions are affecting their sales and input prices
Firms’ sales outlooks have improved
The balance of opinion on future sales indicators has improved for the third consecutive quarter and has returned to its historical average (Chart 3). Some firms reported that while trade-related uncertainty previously led some clients to pause or pull back on operational or investment spending, this caution appears to be subsiding as businesses adapt to the uncertain environment and confidence improves. In addition, more firms than in recent quarters also said public spending—particularly related to infrastructure and defence projects—is supporting their outlooks.
Despite these improvements, outlooks remain subdued among firms in, or serving, industries that are facing export tariffs or that are indirectly impacted by US trade policies.
Chart 3: Indicators of future sales have improved to their historical average
As in recent quarters, most exporting firms said the goods they sell to the United States are compliant with the Canada-United States-Mexico Agreement (CUSMA) and are therefore exempt from tariffs. This quarter, fewer businesses reported that they face obstacles to growing their export sales due to uncertainty around US trade policy. For example, fewer firms indicated that they are hesitant to enter the US market or that US customers are hesitant to use Canadian suppliers.
Similar to last quarter, only a small share of exporting firms reported increased sales to non-US customers (Chart 4). A few firms are in the early stages of diversifying their exports into non-US markets as a strategy to lessen their exposure to trade policy uncertainty. Still, most exporters to the United States have not diversified their trade relationships; many cite either a limited need to do so or barriers to diversification, such as the transportation costs associated with accessing markets distant from Canada.
Chart 4: Evidence that firms are diversifying trade away from the United States remains limited
Few firms raised the upcoming review of CUSMA when discussing their outlooks, and those that did viewed it as a risk rather than a key factor shaping their near-term plans.2 Only a small number of firms reported experiencing concrete effects on their sales from the upcoming review or taking specific actions to prepare for it.
Firms’ investment and employment intentions have strengthened
Firms’ investment intentions improved for the second quarter in a row, with the balance of opinion now well above its long-term average (Chart 5). Stronger domestic demand is an important driver underlying the strength in investment. More firms than in recent quarters are focusing investments on increasing productivity and expanding their capacity, while fewer are focusing on routine maintenance.
Chart 5: Firms’ investment plans have picked up to their strongest level since trade tensions began
Uncertainty related to tariffs and trade continues to weigh on the investment intentions of a minority of firms, most of which expect weaker or unchanged investment over the next 12 months. All the improvement in investment intentions this quarter comes from firms that indicated their investment planning is not affected by trade tensions (Chart 6).
Chart 6: Investment intentions have increased sharply among firms unaffected by trade tensions
More businesses than in recent quarters are planning to grow their workforce. Nearly half of firms anticipate hiring more staff over the next 12 months. The share planning to hire has grown and is now near its historical average (Chart 7). However, most of the planned staffing increases are expected to be small. The improvement in firms’ hiring intentions partly reflects stronger sales outlooks. The share of firms planning to reduce employment fell below its historical average after increasing sharply last quarter.
Chart 7: Firms’ employment intentions are normalizing after recent weakness
Despite improving sales outlooks, most firms continued to report that their current physical capacity and workforce are sufficient. The share of businesses that said they would have difficulty meeting an unexpected increase in demand grew but remains below the historical average (Chart 8, yellow line). Roughly the same number of firms as last quarter reported binding labour shortages (Chart 8, green line). However, while the share of firms reporting that it is more difficult to find labour than a year ago remains below average, it has been rising slowly for the past five quarters.
Chart 8: Most firms reported no capacity constraints or labour shortages
Firms expect normal increases in their costs and selling prices
Expectations for wage growth remain broadly unchanged from last quarter, with firms on average anticipating wage growth of around 3.5%. Firms expect that, over the next 12 months, wages will grow at a slower pace than they did over the past 12 months (Chart 9). Smaller cost-of-living adjustments and weak business performance continue to dampen wage growth expectations for some.
Chart 9: Firms expect wage growth to continue to slow
Firms surveyed before the start of the war in the Middle East expect growth in their input prices and selling prices to be stable over the next 12 months, and they anticipate average-sized increases in both (Chart 10). For some firms, weak demand conditions continue to hold back price increases. In addition, fewer firms than in recent quarters said tariffs and trade-related costs are impacting their input price expectations. This reflects:
- an increasing number of firms stating that their inputs are currently compliant with CUSMA
- fewer firms expecting counter-tariffs to affect their input prices, partly due to the removal last autumn of most counter-tariffs
- supply-chain adjustments made by some firms or their suppliers to help limit cost increases due to tariffs
Nevertheless, firms see potential cost pressures ahead. Most firms expect that CUSMA negotiations will lead to higher average tariff rates on Canadian exports to the United States compared with current levels. Some expect that uncertainty around CUSMA negotiations will lead to increased input prices. For example, firms note that some suppliers are already internalizing higher expected tariffs, contributing to increased input prices for certain products. In addition, most firms contacted through follow-up calls after the outbreak of the war in the Middle East are already seeing direct cost increases or expecting input costs to rise as higher energy costs flow through supply chains (Box 1).
Chart 10: Firms expect moderate increases in their input and selling prices
Expectations for inflation over the near term have edged up since the start of the war in the Middle East, driven by higher energy prices and anticipated supply-chain disruptions related to the war (Box 1). Meanwhile, inflation expectations at all other horizons remain broadly steady between 2.5% and 3% (Chart 11). Although tariffs and trade policies are still among the most cited factors driving up inflation expectations, the share of firms mentioning them continued to decline this quarter.
Chart 11: Near-term expectations for inflation have edged up
Box 1: The war in the Middle East is changing firms’ outlooks for prices
In March 2026, Bank of Canada staff contacted a targeted subset of recent respondents to the Business Outlook Survey (BOS) to understand how their outlook had changed since the onset of the war in the Middle East. A total of 20 firms were selected based on their having a high likelihood of being affected by the war, particularly through their reliance on fuel, fertilizers or global supply chains. The objective was not to replicate the representativeness of the BOS but to focus on the most exposed firms to better understand the channels through which the war would affect firms and the magnitude of the impacts. This box presents insights from these calls, supplemented by the results of a few targeted consultations with industry leaders and observations from the Business Leaders' Pulse (BLP) gathered throughout March.
Some firms have already seen their input prices rise, while others expect increases ahead
Results from the March follow-up calls suggest that the war in the Middle East has prompted significant shifts in sampled firms’ outlooks. Most businesses had revised up their expectations for input prices, mentioning specifically fuel, freight, fertilizers and exchange rates.
Firms engaged in upstream segments of the value chain and those with fuel-intensive operations—namely, those in agriculture, oil and gas, some manufacturing, and transportation industries—have already experienced increases in their input prices. Fertilizer prices have risen, but a large share of farmers have the fertilizer they need for this planting season; thus, longer-term effects on pricing and operations will depend on the duration of the conflict. Industry consultations indicate that supply risks to aluminum production in the Gulf region have driven up global aluminum prices, raising costs for aluminum processors. Consultations also point to higher fuel and freight costs for consumer-facing firms.
Meanwhile, a small subset of firms positioned further along the supply chain reported that they had not yet experienced cost increases but anticipate them in the coming months as suppliers attempt to pass on increased costs.
Barriers to raising prices lead to partial pass-through of higher costs
Although expectations for higher input prices were prevalent across the 20 firms sampled, changes to selling price expectations were less common. Among firms that had already seen or anticipated higher input prices, the ability to pass on cost increases varied by sector. For example, transportation firms indicated that contracts typically include fuel price adjustment clauses. These clauses usually allow full pass-through of costs related to increasing fuel prices—or sometimes partial pass-through in cases where elevated prices are prolonged or for certain clients, for example. Many businesses in other sectors expressed concerns about their ability to pass on the costs from higher input prices. They mentioned factors such as:
- a weak demand environment
- constrained consumer budgets
- elevated industry competition
- pre-existing contracts that limit price adjustments
- limited pricing power
Some of these firms anticipate—or are already experiencing—margin compression as they absorb part or all of the increase in their costs. Others emphasized that it is too early to determine how much to pass on to customers.
Results from regular Bank surveys also show early signs that higher prices related to the war are influencing firms’ inflation expectations: firms in the BLP surveyed after the onset of the war reported higher inflation expectations than those surveyed in the preceding weeks (Chart 1-A).
Chart 1-A: Firm’s inflation expectations have increased since the start of the war in the Middle East
Sales outlooks in some sectors have been affected
Most of the 20 firms sampled indicated that the war in the Middle East had not materially affected their outlooks for sales, investment or employment. And while a few firms noted the potential for disruptions to supply chains if the war persists, none had encountered these issues so far.
However, in consultations with Bank staff, industry leaders in sectors highly exposed to the war reported some revisions to sales expectations. Firms in the oil and gas sector expect increased sales as they maximize the use of existing capacity. In contrast, steel producers said the conflict is weighing on their outlooks because weaker demand from the Middle East could exacerbate the global steel surplus and put downward pressure on prices. Results from the consultations also suggest that higher gasoline prices are adding pressure to already squeezed household budgets, leading to reduced discretionary spending. This is consistent with responses to a special survey of households on how the war has affected their expectations and behaviours.3
In general, in follow-up calls, the actions firms reported taking were limited to increased caution, close monitoring of developments in the Gulf region and efforts to mitigate rising costs. In part, this reflects firms’ ongoing uncertainty about the duration of the war, the nature of any eventual resolution and the implications for their business.
Endnotes
- 1. The majority of Business Outlook Survey interviews were conducted before the Supreme Court of the United States ruled against tariffs imposed under the International Emergency Economic Powers Act. None of the firms interviewed after the decision was released mentioned the ruling as a prominent theme.[←]
- 2. The first joint review of CUSMA will begin on July 1, 2026.[←]
- 3. See Bank of Canada, “Box 2: Households expect the war in the Middle East to weaken the economy and raise prices,” Canadian Survey of Consumer Expectations—First Quarter of 2026 (April 2026).[←]
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).