Data from the Bank of Canada’s recent outlook survey indicated that, on average, business sentiment improved in the third quarter of 2026.
The positives
Reports of geopolitical financial pressure declined compared to the second quarter.
The number of firms planning or budgeting for a recession in Canada within 12 months dropped from 17% to 6%. This marks the lowest percentage since the question was first added to the survey in 2023.
In addition, businesses reported stronger past sales and improved sales outlooks in the third quarter. The balance of opinion on future sales indicators rose above the historical average (Chart 2).
Between the lines
At the same time, geopolitical trade tensions and the war in the Middle East remain concerning.
It’s important to note that the BoC held interviews before US-CA trade talks went south — before the Trump Administration imposed 50% tariffs on Canadian goods on August 22nd, 2026.
In response, Canada implemented dollar-for-dollar and rate-for-rate counter-tariffs on $27.6 billion worth of US imports beginning September 8, 2026. Combined, these factors compounded existing economic pressures.
The report makes an intentional distinction between sentiment before and after the US-CA trade talks breakdown. The events of August and early September massively impacted business outlook.
The BoC notes that new tariffs and increased energy prices triggered a surge in inflation expectations.
Canada’s annual inflation rate increased to 3.1% in September as higher gasoline and diesel prices sent the consumer price index over the BoC’s upper limit once again after three months.
On October 28th, the Bank of Canada will make its next interest rate decision. The policy interest rate currently stands at 2.25%, with many economists expecting a hike.
