Despite rising costs and trade challenges, Canadian business sentiment remains resilient, according to Statistics Canada (StatCan).

Overall, 66.8% of businesses are optimistic about their outlook over the next 12 months, a proportion similar to levels seen in previous quarters.

Sales expectations are showing modest improvement. Nearly 1 in 5 (19.4%) businesses anticipate growth in the next quarter, up from 17.9% in the first quarter. At the same time, 25.2% of businesses expect the selling price of their goods or services to increase, reflecting ongoing cost pressures.

Accommodation and food services (42.0%), retail trade (39.7%), and wholesale trade (39.5%) were most likely to expect price increases, underscoring challenges in consumer-facing industries.

Challenges ahead for employers

While optimism remains steady, businesses continue to face significant cost-related obstacles. StatCan said that 64.3% of businesses expect cost-related challenges over the next three months, up from 58.9% in the first quarter.

“Nearly half (48.8%) of businesses expect inflation to be an obstacle,” the report noted, with accommodation and food services (65.9%), retail trade (60.0%), and manufacturing (58.2%) most affected. Inflation was identified as the single most common challenge across industries.

The cost of inputs—including labour, raw materials, and energy—was the second most frequently cited obstacle, with 28.4% of businesses expecting difficulties. Agriculture, forestry, fishing and hunting reported the highest concern at 60.0%, followed by manufacturing at 48.1% and accommodation and food services at 43.1%.

Wage growth is adding to the pressure. Average hourly wages rose 4.5% year over year in April, following a 4.7% increase in March. At the same time, the Raw Materials Price Index showed a 2.6% month-over-month increase in April and a 31.6% rise compared with the previous year, underscoring the scale of input cost challenges.

Rising payroll expenses, combined with inflation and surging material costs, are expected to weigh heavily on business operations in the coming quarter.

Patrick Gill, Vice President of the Business Data Lab at the Canadian Chamber of Commerce, noted that beneath the surface, caution is growing among employers. “Canadian employers remain cautiously optimistic, but the underlying signals point to an economy that is becoming increasingly fragile,” he told HRD. “Demand is softening, energy prices have risen, hiring has lost momentum, and many businesses are prioritizing efficiency and risk management over growth.”

Canada’s annual inflation rate accelerated in April as surging energy costs pushed the Consumer Price Index (CPI) up 2.8% year over year, StatCan previously reported.

Tariff concerns and trade uncertainty

Trade tensions with the United States remain a concern. StatCan reported that 34.0% of businesses expect U.S. tariffs on Canadian imports to negatively impact operations over the next 12 months. Manufacturing (54.0%), wholesale trade (47.1%), and agriculture (46.3%) were most likely to report concern.

The agency added, “Over one-quarter (28.3%) of businesses reported having passed cost increases due to tariffs onto their customers over the 12 months prior to the survey.” Nearly two-fifths (38.4%) did not pass on costs, while one-third (33.3%) said they did not experience tariff-related increases.

Looking ahead, just over one-third (33.8%) of businesses said they are likely to pass future tariff-related cost increases onto customers. However, 35.3% indicated they do not expect to do so, as they anticipate no additional tariff-related costs.

Gill added that confidence in future demand is now as pressing as cost pressures. “The biggest challenge facing many firms isn’t capacity—it’s confidence in future prices and demand,” he explained. “Businesses are increasingly focused on where future revenue growth will come from rather than simply where they will find workers,” he told HRD.

AI adoption is rising

Technology adoption is reshaping operations across industries. StatCan said that 19.2% of businesses used artificial intelligence (AI) to produce goods or deliver services in the past year, up sharply from 6.1% in 2024.

The most common applications were data analytics (36.6%), text analytics (34.5%), and virtual agents or chatbots (28.2%). Businesses cited barriers to adoption, including lack of relevance (40.0%), cybersecurity or privacy concerns (13.4%), and costs (10.6%).

The rapid growth in AI use highlights a significant shift in business practices, with firms increasingly leveraging technology to improve efficiency and customer engagement.

Currently, Canadian employers are expanding climate planning in ways that will reshape workforce strategy, policies and skills, according to research from the BMO Financial Group.

Gill emphasized that HR professionals have a critical role to play in helping businesses adapt to these challenges. “The most valuable HR strategy in 2026 may be developing talent, not finding it,” he said. “As hiring becomes more selective and growth moderates, success will depend less on adding headcount and more on maximizing the potential of existing employees.”

Source: Human Resources Director