CFIB report points to modest growth, cautious investment and flat vacancies
Canada’s economy is expected to pull out of its late‑2025 slump with modest growth through the first half of 2026 – but small and mid‑sized businesses are still playing defence rather than betting on big expansion, according to new forecasts from the Canadian Federation of Independent Business (CFIB).
In its latest Main Street Quarterly, produced with economic consulting firm AppEco, CFIB estimates that the Canadian economy grew by 1.6% in the first quarter of 2026 and will expand at the same pace in the second quarter.
“We forecast the Canadian economy will show a modest recovery for the first half of 2026,” said Simon Gaudreault, CFIB’s chief economist and vice‑president of research.
That marks a turnaround from late 2025, when CFIB/AppEco data show the GDP declined by 0.6% (annualized) in Q4 and private investment finished the year with an overall contraction of 1.7%.
The new report points to “a good recovery for the first half of 2026, with increases of 1.6% in both Q1 and Q2,” driven by “strong oil and gas production amid geopolitical tensions, as well as sustained construction activity.”
Growth with a side of inflation and geopolitical risk
The recovery isn’t happening in a vacuum. CFIB notes that “current geopolitical tensions and fuel volatility are putting pressure on consumers and businesses,” and those forces are showing up in its inflation outlook.
CPI inflation rose to 2.2% in the fourth quarter of 2025 and stayed at a similar level in early 2026, with core inflation (excluding food and energy) at 2.5% at year‑end before easing to 2.1% in Q1 2026.
Looking ahead, CFIB and AppEco expect total CPI to tick up to about 2.9% in the second quarter of 2026, an “uptick… consistent with geopolitical tensions in Iran, maintaining medium‑term pressure on prices.”
Jobs and vacancies: slow improvement
On the labour side, payroll employment grew by only 0.2% in the final quarter of 2025, but CFIB expects that pace to pick up to 1.4% in Q1 2026. The group says this “acceleration in hiring is consistent with GDP growth forecasts for the same period, signalling a certain recovery in economic activity.”
Yet the job vacancy picture remains remarkably steady. The private‑sector vacancy rate held at 2.8% in Q1 2026 – the fifth consecutive quarter at that level – representing about 391,300 unfilled positions.
CFIB says vacancy rates showed “little to no change quarter‑over‑quarter across most provinces and sectors,” and year‑over‑year variations were “minimal—under 0.5% for all provinces, sectors, and business sizes, except for businesses employing 5 to 19 workers (-0.7).”
Most provinces saw slight declines in vacancy rates, with only Saskatchewan, Quebec, New Brunswick, and Newfoundland and Labrador posting small increases. Sectorally, information, arts and recreation (+0.5), retail (+0.3), finance, insurance and real estate (+0.1), and transportation (+0.1) were the only industries with notable year‑over‑year vacancy growth.
Investment mindset stays cautious
The sharpest shift in the report is on the investment side. Private investment fell again in Q4 2025, dipping 0.2% to cap off a 1.7% annual contraction. But CFIB and AppEco now see “a trend reversal for 2026, with a recovery in investment of 3.1% in Q1 and 2.9% in Q2.”
That said, the tone among business owners is still wary rather than exuberant. CFIB notes that “investment plans are signalling positive but cautious sentiment.” According to Gaudreault, “most businesses remain focused on maintaining existing operations rather than on major expansion amid higher costs, uncertainty, and continued soft demand.”
Survey indicators back that up. Business investment intentions “remained below their historical average through most of the year” in 2025 after what CFIB calls “a sharp contraction in early 2025—the steepest quarterly drop since the COVID‑19 shock.” Expectations only turned “modestly positive” in Q4 2025, with a balance of opinion of +14%, pointing to an “emerging recovery.”
Maintenance over growth for investment
One of the clearest trends is a structural shift in how small businesses are choosing to invest.
“The structure of business investment has shifted decisively toward maintenance rather than growth,” CFIB says, citing Bank of Canada data showing that spending on equipment replacement has “pulled well ahead of both expansion and productivity‑enhancing investments since late 2022,” a gap that “widened through 2025.”
“This sustained divergence signals a structural shift toward maintaining existing operations rather than expanding capacity or boosting productivity, reflecting a more cautious, risk‑averse stance amid higher costs, uncertainty, and softer demand,” the report concludes.
Most firms plan to maintain or increase investment levels, with relatively few planning cuts.
Employee development tops the list. “Employee training is the most common investment priority; at least two‑thirds of firms in every sector plan to invest at the same level or more over the next 12 months compared to 2025,” the report says.
Professional and business services (86%), construction (83%), manufacturing (81%) and agriculture (81%) stand out, suggesting that “businesses across both service and goods‑producing sectors continue to prioritize human capital and skills development to varying levels.”
