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CA: BoC Business Outlook Survey
| Actual | Previous | |
| Business Outlook Indicator | -0.36 | -1.78 |
Highlights
Business sentiment improved slightly prior to the Middle East war, with the first quarter 2026 Business Outlook Survey (BOS) index at minus 0.36, up from minus 1.78 in the fourth quarter of 2025 based on interviews conducted by the Bank of Canada between February 5 and 25. The first attacks on Iran occurred February 28.
Along with stronger sales growth expectations, business investment and hiring intentions improved, consistent with improving domestic demand and lower uncertainty at the time. In particular, investment intentions have sharply improved for firms unaffected by trade tensions.
Prior to the Middle East conflict, firms expected stable price growth over the next 12 months. Expectations for wage growth are also broadly unchanged from the previous quarter.
The survey included follow-up questions between March 18 and 27, with a focus on firms particularly exposed to the war. Results from these questions signal that outlooks for sales, investment and employment were roughly unchanged.
On the inflation front, firms' one-year expectations slightly increased, driven by the views of those surveyed in March after the outbreak of war in the Middle East. Some firms have already seen higher input prices. However, expectations at all horizons remain below the peak reached during the height of the trade conflict in early 2025.
In March, the 12-month inflation rate rose to 2.4 percent in March from 1.8 percent in February. Excluding gasoline, inflation actually slowed to 2.2 percent from 2.4 percent year-over-year. The supply shock resulting from the Middle East conflict that started at the end of February boosted gasoline prices, which surged 21.2 percent month-to-month, the largest monthly gain on record and the top upward contributor to monthly inflation. Gasoline prices were up 5.9 percent year-over-year in March.
It is no surprise then that the survey shows that many businesses are already facing higher input costs related to energy, fertilizer and freight. The minutes of the Bank of Canada's March meeting show that the central bank had discussed the risk that disruptions to shipping through the Strait of Hormuz could raise the costs of other commodities, such as fertilizer." Governing Council members also discussed how such price increases could impact prices of goods and services like air transportation and food.
Among respondents, 72 percent expect inflation between 2 and 3 percent over the next two years, up from 60 percent the previous quarter.
On the lingering issue of trade tensions, fewer firms reported a drag. In fact, the share of firms budgeting for a recession over the next 12 months dropped to 9 percent from 22 percent.
Definition
The Bank of Canada's (BoC) publishes a quarterly Business Outlook Survey based on a summary of interviews conducted by the Bank's regional offices with the senior management of about 100 firms, selected in accordance with the composition of Canada's gross domestic product (GDP). The survey's purpose is to gather the perspectives of these businesses on topics of interest to the central bank (such as demand and capacity utilisation) and their forward-looking views on economic activity. Since the BoC is charged with keeping inflation within a specified target range, information on price pressures is watched particularly closely.
Description
The outlook survey is used to evaluate economic conditions prior to four Board meetings a year where the BoC sets interest rate policy. Although monetary policy is announced eight times a year, these reports are available only on a quarterly basis. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
If the survey portrays an overheating economy or inflationary pressures, the Bank of Canada may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the survey portrays economic difficulties or recessionary conditions, the Bank of Canada may see the need to lower interest rates in order to stimulate activity.