Businesses in Canada maintained a mixed view of the economy in the second quarter, according to the latest Bank of Canada Business Outlook Survey. 

After improving over the previous three quarters, rising input costs and geopolitical uncertainty caused by the war in the Middle East have been weighing on business sentiment.

The survey was conducted from May 1 to 21, 2026—before the MOU between the U.S. and Iran was signed and the subsequent decline in oil prices—so, some of the findings may not necessarily be reflective of current sentiment.

The war-driven oil spike split the Canadian economy. In the Prairies, energy-linked firms reported stronger outlooks for sales, hiring, and investment. Conversely, the rest of Canada saw weaker outlooks for business activity as uncertainty and high fuel costs squeezed household and business spending. 

Encouragingly, fewer firms reported that trade tensions and the uncertainty surrounding them were holding back orders, leaving firms better positioned to face the economic shock associated with the war. However, in light of the recent developments in the CUSMA negotiations, some of that uncertainty has likely made its way back.

In addition, investment plans have picked up to their strongest level since trade tensions began, with more firms focusing investments on increasing productivity and expanding capacity rather than focusing on routine maintenance compared to recent years.

The special case of oil and gas

The survey featured an oil and gas industry outlook based on special consultations with business leaders and experts in the sector. Firms expect oil prices to soften but remain above pre-war levels. In response, energy producers have revised their capital spending plans and are actively increasing production, in line with our latest quarterly outlook. However, operators remain cautious; rather than launching major expansions, firms in the oil sands are choosing to maximize output from existing assets with only marginal budget increases. Beyond the near-term price fluctuations, the long-term outlook showed signs of improvement, stemming from proposed infrastructure projects and progress towards federal-provincial collaboration.

Inflation expectations ease in June

The rise in energy prices since the Iran War has raised the possibility that inflation could be higher for longer.  However, the more-timely monthly Business Leaders’ Pulse showed that, in June, inflation expectations across all time horizons (one, two, and five years ahead) have eased since the last survey in May.

So far, the rise in inflation brought on by the war does not seem to be a generalized inflation shock, despite rising headline numbers. While the likelihood of a rate hike has surpassed that of a cut, our view is that the Bank of Canada will leave rates unchanged for the rest of 2026.

In short, the survey points to a cautious business environment, but with reassuring signs on business investment intentions, easing trade tensions, and lower inflation expectations.

Answer to the previous trivia question: Over 3,500 seasonal jobs are created by the Calgary Stampede each year.

Today’s trivia question: What sporting event is expected to boost the June job numbers in the U.S. and Canada?