Results of the second-quarter 2026 survey | Vol. 23.2 | July 6, 2026

The Business Outlook Survey was conducted by in-person, video and phone interviews from May 1 to 21, 2026. The Business Leaders’ Pulse is conducted online every month; the latest results are from April, May and June 2026. This quarter’s publication also includes results from special consultations with business leaders and industry experts in the oil and gas sector.

Overview

  • Overall business sentiment has deteriorated after improving over the past three quarters.
  • Sales outlooks have softened slightly, reflecting a slowdown in business and consumer spending associated with rising fuel-related costs and heightened geopolitical uncertainty in the Middle East.
  • Firms’ export outlooks have improved. Fewer firms said trade uncertainty and hesitancy among US customers are constraining exports, and more firms reported strong demand for commodity exports.
  • Most firms did not report binding capacity constraints or labour shortages. Reports of difficulties sourcing critical inputs increased this quarter, but these were generally not viewed as limiting firms’ ability to meet demand.
  • Firms’ investment intentions remain strong. Soft demand and lingering uncertainty continue to weigh on investment plans for some, while elevated commodity prices are supporting plans for others. In the oil sector, higher oil prices are prompting producers to increase both production and investment (Box 1). Firms’ employment intentions are weaker than the historical average.
  • The share of firms expecting their input and selling prices to increase rose markedly, with expected price increases often linked to high global oil prices.
  • Expectations for elevated oil prices have driven an increase in firms’ inflation expectations relative to recent quarters. However, most recently, inflation expectations have declined, with the lowest expectations of the quarter recorded in the period after the signing in mid-June of the interim agreement between the United States and Iran to end the war in the Middle East.
  • This quarter’s Business Outlook Survey (BOS) report introduces the BOS activity and price indicators. These new summary measures of Canadian firms’ outlooks provide a nuanced view of supply and demand forces by separately capturing signals on firms’ activity and prices. The two indicators have diverged: higher oil prices are putting upward pressure on firms’ price outlooks while weighing on the activity outlooks for firms outside the Prairies.1
More data and charts are available on the survey data page.

Business sentiment has weakened amid the war in the Middle East

After improving over the previous three quarters, business sentiment deteriorated this quarter (Chart 1). Compared with the first quarter of 2026, more firms reported that rising input costs and geopolitical uncertainty caused by the war in the Middle East are weighing on business conditions. Consistent with this, the share of firms planning or budgeting for a recession in Canada over the next 12 months rose from 9% to 17%. Even so, this share remains below the levels seen throughout 2025.

Chart 1: Business sentiment has deteriorated

Alongside this weakening in business sentiment, the Business Outlook Survey (BOS) activity indicator declined, largely reflecting a weaker sales outlook (Chart 2, blue line). Meanwhile, the BOS price indicator increased due to expectations for both higher inflation and stronger growth in input and selling prices (Chart 2, yellow line). This divergence between the indicators is consistent with a negative supply shock associated with the war in the Middle East and with regional and sectoral differences.

Chart 2: Firms’ outlooks for prices have increased, while those for activity have weakened

The impact on business activity from the war and the associated rise in oil prices varied across regions and sectors. In the Prairies, firms reported stronger outlooks for sales, investment and hiring than last quarter (Chart 3, blue bars). Most of this strengthening is driven by firms in this region that are in or linked to the oil sector, where outlooks are supported by higher oil prices. In contrast, firms in the rest of Canada reported weaker outlooks for business activity, reflecting heightened uncertainty and the negative effects of elevated fuel costs on household spending and business demand (Chart 3, yellow bars).

Chart 3: Outlooks for business activity have improved for Prairie firms

Firms’ sales outlooks have softened

More firms than last quarter expect their sales growth to slow. In addition, the balance of opinion on indicators of future sales has edged down after improving over the past three quarters and now sits just below its historical average (Chart 4). The softening was driven by firms reporting that the effects of the war in the Middle East are weighing on sales (Chart 5, red bar). Some of these firms pointed to elevated fuel costs and heightened uncertainty dampening demand from business customers. Outlooks have also weakened for businesses tied to consumer discretionary spending, as higher gasoline prices linked to the war are constraining spending on travel, dining and major purchases (e.g., furniture, vehicles).

Trade tensions and related uncertainty continue to weigh on firms’ outlooks for domestic sales, mostly through indirect effects such as dampened consumer confidence and reduced spending by businesses in tariff-affected sectors. Outlooks are particularly weak among firms in the housing sector, which also face slow population growth, affordability challenges and geopolitical uncertainty.

Chart 4: Firms’ indicators of future sales have weakened slightly since last quarter

Chart 5: The war in the Middle East is weighing on firms’ sales

At the same time, a few factors supported firms’ sales outlooks. A small share of firms—mostly in or serving the oil sector—reported improved outlooks because of stronger demand for oil and increased activity in the sector (Chart 5, green bar). Similar to last quarter’s results, current survey findings show that more firms than in any quarter in 2025 reported that public spending, particularly on infrastructure projects, is supporting their outlooks.

Firms’ outlooks for exports improved to well above the historical average (Chart 6). This improvement reflects three factors:

  • Fewer businesses reported that trade tensions are weighing on their export outlooks. In particular, fewer said US customers are holding back on orders because of uncertainty around changing trade policies. A small share also reported adapting their production, shipping or customs arrangements, or diversifying into new industries to reduce their exposure to tariffs.
  • Elevated prices for commodities, particularly oil and metals, are supporting export volumes for these products.
  • Demand for goods and services tied to the construction of artificial intelligence (AI) data centres in the United States—including telecom, electrical and metal inputs—is supporting firms’ export outlooks.

Chart 6: Indicators of future export sales have improved

Investment plans remain strong, while employment intentions eased

Firms’ investment intentions are broadly unchanged from last quarter and remain at a high level (Chart 7). Domestic demand continues to support investment plans overall, but soft demand and lingering uncertainty are still weighing on investment plans for some firms. Productivity-related investment plans are still more prevalent than in recent years, including investments in equipment upgrades and AI integration. Routine maintenance remains the most common reason for investment spending. Elevated commodity prices are sustaining investment among firms tied to the natural resources sector, particularly oil and gas (Box 1). Firms expecting increases in sales linked to public spending also have strong investment intentions.

Businesses’ employment intentions weakened slightly this quarter to below their historical average, as a softer demand outlook weighs on hiring plans (Chart 7), especially for firms outside the Prairies. In contrast, hiring intentions increased among firms in the Prairies, supported by higher commodity prices.

Chart 7: Firms’ employment plans have weakened, while investment plans remain strong

Most firms still report spare capacity

Following a sustained period of weak demand in past quarters, a majority of 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 declined from last quarter and moved further below its historical average (Chart 8, blue line). Reports of binding labour shortages also declined (Chart 8, yellow line). In addition, this quarter fewer firms said it is more difficult to find labour than it was a year ago, reversing some of the increase seen over the past year.

Chart 8: A minority of firms report capacity constraints or labour shortages

More firms reported supply chain issues than in recent quarters (Chart 9). However, most did not see these issues as limiting their ability to meet demand. Issues are also much less common than in 2022, during the late stages of the COVID-19 pandemic, when supply chain disruptions were widespread. Firms citing issues pointed to difficulties sourcing critical inputs and to higher input costs, which they attributed to:

  • tariffs and trade tensions
  • the war in the Middle East
  • the surge in investment in AI data centres in the United States

Chart 9: Reports of supply chain issues have increased

Elevated oil prices have pushed up firms’ price expectations

Firms’ expectations for average wage growth are roughly unchanged from last quarter and remain at the historical average (Chart 10). Weak business profitability continues to dampen wage growth expectations, while cost-of-living adjustments are now putting upward pressure on wage expectations over the next 12 months. The share of firms citing upward pressure on expected wage growth to attract or retain workers remains low, consistent with limited labour shortages.

Chart 10: Expected wage growth is roughly unchanged

Firms’ expectations for the growth of both non-labour input costs and selling prices over the next 12 months have increased considerably (Chart 11). Although more firms than last quarter intend to significantly raise their selling prices, most continue to plan only slight price increases. Nearly three-quarters of firms reported that their costs have risen because of the war in the Middle East (Chart 12). Firms reported increases largely tied directly to higher fuel costs, including shipping and transportation costs. Some firms also noted cost increases for products derived from oil, such as resins and foams. About one-fifth of firms—a smaller share than last quarter—also reported cost pressures from tariffs and trade policies. These firms often referred to tariff costs working their way through the supply chain. Such cost increases were broad-based across inputs, although steel was mentioned frequently.

Among firms with fuel and non-fuel related cost increases caused by the war in the Middle East, roughly 40% are not passing on and 25% are only partially passing on the increases to their customers. Reasons for not fully passing on the increases include:

  • weak demand and strong competition
  • uncertainty around the duration and size of the shock
  • other constraints on firms’ ability to adjust prices (e.g., long-term contracts, fixed price-setting frequencies, prices that are set in world markets)

Still, roughly one-third of firms with such cost increases are fully passing them on to their customers over the next 12 months. For them, passing on the increases was often linked to:

  • mechanisms in place to pass on cost increases (e.g., fuel surcharges, cost escalators in contracts)
  • fixed-margin business models, often with thin margins and no room to absorb cost increases

Chart 11: More firms than last quarter expect their input and selling prices to increase

Chart 12: Firms expect tariffs and the war in the Middle East to raise input prices

On average, expectations for inflation over the next two years increased from last quarter, largely reflecting higher oil prices related to the war in the Middle East (Chart 13). Firms expect inflation one year from now and over the next two years to be in the range of 3% to 3.5%.

However, one-year-ahead inflation expectations have been trending down since peaking in April, with the lowest expectations of the quarter recorded in the period after the signing of the interim agreement between the United States and Iran in mid-June. Five-year inflation expectations remain broadly unchanged since before the start of the war. When firms were asked when they think inflation will return to 2%, their responses varied significantly, and one-fifth of firms said it was too hard to say.

Chart 13: One-year-ahead inflation expectations eased after increasing sharply

Box 1: The outlook for investment and production in the oil and gas sector has improved

Between May 7 and 21, 2026, Bank of Canada staff held consultations in Calgary with industry leaders and experts from across the oil and gas sector, including producers, pipeline operators, energy service providers and analysts. Prices for West Texas Intermediate (WTI) crude oil averaged US$101 per barrel over the consultation period, compared with an average of US$65 per barrel between February 1 and 27, 2026, before the onset of the war in the Middle East.

Firms expect WTI prices to soften in line with financial markets’ expectations for future oil prices. However, prices are anticipated to remain above pre-war expectations because of ongoing supply disruptions and heightened geopolitical risks. Pricing for Western Canadian Select (WCS), a key Canadian heavy sour blend of crude oil, is expected to reflect offsetting forces over the medium term. Growing oil sands production is weighing on WCS prices. In addition, renewed competition at US Gulf Coast refineries from Venezuelan heavy crude, which is chemically similar to Canadian heavy crude, is likely to place further downward pressure on WCS prices. However, this pressure should be partly offset by increased shipments through the Trans Mountain Expansion pipeline to Asia, where demand for heavy crude remains strong.

Investment and production plans for publicly traded firms in the oil and gas sector have been revised up since December (Chart 1-A and Chart 1-B).2 With WTI prices expected to hover around US$70 by the end of the year, as financial markets suggest, most conventional and oil sands producers can increase capital expenditures and production while meeting other priorities, such as paying dividends and reducing debt. However, oil sands producers tend to remain cautious about expansions because the long life cycles of their projects make their operations less sensitive to short-term price fluctuations. Still, some are seeking to benefit from higher prices by operating existing assets more intensively, with only marginal additions to capital budgets. In contrast, conventional oil producers have responded more quickly to elevated oil prices than other producers, as their shorter production cycles allow them to capitalize on periods of elevated prices.

Persistently low natural gas prices in North America are leading natural gas producers to scale back investment in gas-intensive infrastructure, resulting in downward revisions to investment plans compared with December 2025. At the same time, natural gas production continues to be supported by the start-up of LNG Canada Phase 1 and demand from oil sands producers for natural gas liquids. Participants in consultations expressed growing optimism about the long-term outlook for natural gas because they expect several proposed liquefied natural gas projects to proceed, expanding access to global markets. Canadian projects are seen as cost-competitive with US counterparts due to West Coast access, which reduces transport costs to Asia.

Chart 1-A: Oil producers have revised up capital spending plans

Chart 1-B: Oil producers are increasing production in response to higher prices

Asked about the long-term outlook for the oil and gas industry, firms indicated that business conditions in the sector have improved since December. They pointed to proposed infrastructure projects and to progress in federal–provincial discussions on emissions controls and environmental assessments as key drivers. These developments are also fostering a more favourable investment climate and are expected to help attract foreign direct investment, as reflected in Shell plc’s recent decision to acquire Canada’s ARC Resources Ltd.

  1. 1. For details about the BOS price and activity summary indicators, see Bank of Canada, “Backgrounder on new summary indicators for the Business Outlook Survey” (July 2026).[←]
  2. 2. In 2025, measured in barrels of oil equivalent, Canada’s oil and gas production was roughly 20% conventional oil, 40% oil sands crude and 40% natural gas. However, oil accounts for a larger share of industry revenues because of its higher price.[←]

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).

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