The Bank of Canada's third-quarter 2026 Business Outlook Survey indicates that overall business sentiment improved compared to the previous quarter. While many firms reported better sales outlooks, the data is complicated by a recent breakdown in trade negotiations between Canada and the United States.

How did trade tensions impact the results?

Because approximately 75% of the survey interviews were conducted before August 21, the results largely reflect a period of lessening geopolitical tension. During that window, businesses felt more optimistic due to solid demand in the U.S. and high oil prices. However, the data collected after trade talks collapsed shows a different trend.

According to the Bank of Canada, firms surveyed after the breakdown reported:

  • Weaker overall sentiment
  • Lower expectations for export sales
  • Reduced plans for business investment
  • Higher inflation expectations due to new tariffs and energy costs

What are the implications for rising costs?

As companies face new economic pressures, a significant portion of the business community is preparing to adjust their pricing. Roughly half of the surveyed firms plan to pass cost increases on to their customers. For some, this move is intended to recover previously compressed profit margins, while others are reacting to stabilizing demand.

While short-term inflation expectations showed some easing, long-term outlooks remain a point of concern. Specifically, five-year inflation expectations rose to 3.91%, up from 3.39% in the second quarter. This divergence between near-term and long-term views may influence how central bank policymakers approach future interest rate decisions.

FAQ

Is a recession expected by Canadian businesses?

Only 6% of firms surveyed expect a recession in the next 12 months, a significant decrease from the 17% reported in the second quarter.

How are businesses handling new tariffs?

Many companies are adapting to trade uncertainty by modifying their supply chains, improving operational efficiency, and diversifying their export markets.