Business Confidence Weakens in Second Quarter as Higher Fuel Costs, Global Uncertainty Weigh on Outlook

Canadian business sentiment weakened during the second quarter of 2026, reversing gains made over the previous three quarters as higher fuel costs and geopolitical tensions dampened confidence, according to the latest Business Outlook Survey released by the Bank of Canada.

The survey found that firms across the country reported a softer sales outlook, citing slower business and consumer spending linked to rising energy prices and uncertainty surrounding the conflict in the Middle East.

Despite the decline in overall sentiment, export expectations improved during the quarter. Fewer businesses reported that trade uncertainty or hesitation among U.S. customers was limiting export activity, while stronger demand for commodity exports provided support for some sectors.

Most firms indicated they are not facing significant capacity constraints or labour shortages. However, reports of difficulties sourcing critical inputs increased compared with the previous quarter. Businesses generally said those supply challenges were not severe enough to prevent them from meeting customer demand.

Investment intentions remained relatively strong. While weaker demand and ongoing uncertainty continue to restrain spending plans for some businesses, elevated commodity prices are encouraging investment in others. In particular, companies in the oil sector reported plans to increase both production and capital spending in response to higher oil prices.

Employment plans were less optimistic, with hiring intentions falling below historical averages.

The survey also found a sharp increase in the number of businesses expecting both input costs and selling prices to rise. Many firms linked anticipated price increases to elevated global oil prices.

Inflation expectations also increased during much of the quarter as businesses anticipated sustained higher energy costs. However, expectations eased later in the quarter following the signing of an interim agreement between the United States and Iran in mid-June aimed at ending the conflict in the Middle East.

The findings highlight the mixed economic environment facing Canadian businesses, with strong commodity markets supporting some sectors while higher costs and uncertainty continue to challenge broader economic growth.