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The Iran war both hampered business confidence and sent inflation expectations soaring, the Bank of Canada revealed in a new set of business outlook surveys published Monday.
Those opposing forces on the economy also pushed the central bank to introduce new metrics for tracking sales and price activity in an increasingly shock-prone world.
The Bank of Canada’s latest surveys show that input costs and geopolitical uncertainty were on the rise over the past three months, hurting sales expectations for most firms outside the oil and gas sector in the Prairies.
The share of businesses bracing for a recession to hit the economy in the year ahead jumped to 17 per cent in the second quarter, nearly double the nine per cent recorded in the previous three months. The bank noted this measure is still lower than levels seen in 2025.
Inflation expectations among businesses soared alongside spiking energy prices tied to the Middle East conflict.
The magnitude of those projected price hikes hit a roughly four-year high last quarter, according to the central bank.
But those expectations peaked in April and declined further after the signing of a peace deal in mid-June.
The Bank of Canada is splitting its benchmark indicator into two new measures to separately track firms’ expectations for sales, hiring and investment and another for input and selling prices, wages and inflation.
Historically, those indicators have moved roughly in lockstep: when businesses’ outlooks for sales fall, price pressures tend to ease, and vice-versa.
But a central bank official briefing on Monday noted that some shocks like the Iran war can send those two metrics in opposite directions.
“A single summary measure cannot communicate both signals at the same time,” read a background document given to reporters.
“Using separate indicators for activity and prices makes these episodes easier to interpret, and the relative movement between the two sheds light on the nature of economic shocks.”
Businesses were meanwhile reporting less uncertainty tied to the trade disruption with the United States, and the outlook for exports improved to well above historic averages on the back of higher commodity prices and demand for artificial intelligence inputs.
This report by The Canadian Press was first published July 6, 2026.
Craig Lord, The Canadian Press
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