Geopolitical risks trump trade tensions as biggest threat to Canadian economy, Bank of Canada survey finds

The Bank of Canada’s first-quarter 2026 Market Participants Survey revealed geopolitical risks as the primary concern for Canada’s economic growth, cited by 82% of 28 financial leaders surveyed between March 25 and April 1. Trade tensions ranked second at 79%, while tightening global financial conditions were noted by 57%. The shift reflects heightened uncertainty following the Iran war, which began in late February, alongside U.S. tariff measures and the upcoming Canada-United-States-Mexico Agreement review. Participants also pointed to easing trade tensions (86%) and larger-than-expected fiscal stimulus (57%) as top upside risks, alongside higher commodity prices (43%) and reduced geopolitical risks. In contrast, the prior survey from Q4 2025 had ranked trade tensions, global financial conditions, and weaker consumer spending as the leading threats, conducted before the Iran conflict escalated. Bank of Canada Governor Tiff Macklem previously warned that Canada’s economic outlook depends on trade negotiations with the U.S. and the Iran war’s severity, while emphasizing the need for flexible monetary policy. He noted that interest rate hikes could occur if inflation and energy prices persist, though no fixed timeline exists. The survey follows Macklem’s April 29 remarks and coincides with Finance Minister François-Philippe Champagne’s spring economic update, which revised Canada’s 2025-2026 deficit downward to $66.9 billion from the $78.3 billion projected in November. Market participants now assign a 25% probability to a recession in the next six months, up from 20% in the last survey but below the 38% seen earlier in the year.