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A recent survey conducted by the Bank of Canada indicates that escalating geopolitical tensions now pose a more significant threat to the nation’s economic productivity than trade disputes, particularly with the United States. This shift in perception comes amid the ongoing conflict in Iran, which has persisted for over two months without resolution, compounded by U.S. President Donald Trump’s rejection of Iran’s latest ceasefire offer.
Survey Insights: Risks to Economic Growth
Released on Monday, the Bank of Canada’s Market Participants Survey for the first quarter of 2026 was conducted between March 25 and April 1 and included approximately 27 financial and business leaders from sectors such as banking, insurance, and asset management. Respondents were asked to identify up to three risks that could adversely affect Canada’s economic growth.
The findings revealed that a staggering 82% of participants flagged rising geopolitical tensions as the foremost risk, making it the most prevalent concern among the options provided. Following closely, 79% cited deteriorating trade relations, while 57% pointed to tightening global financial conditions as another significant threat.
The Impact of the Iran Conflict
The ongoing conflict in Iran is causing substantial disruptions to global supply chains, particularly affecting essential commodities such as crude oil, natural gas, and fertilisers. The Strait of Hormuz, a critical shipping lane, remains largely inaccessible to most container vessels, leading to increased prices for food and fuel globally as supplies dwindle.
A warning issued last month by a United Nations agency highlighted the potential for a food crisis later this year if the situation in Iran does not improve. The implications of this conflict extend beyond immediate price increases; they threaten the stability of essential goods and could lead to broader economic ramifications.
Potential Responses from the Bank of Canada
In light of these developments, the Bank of Canada has expressed concerns regarding the potential need to raise interest rates should energy prices continue to rise. During a press briefing on April 29, Governor Tiff Macklem noted that if elevated energy prices persist, an increase in the policy rate may be necessary to rein in inflation, currently targeted at 2%.
“If energy prices go higher, and particularly if they stay higher for longer, there could well be a need to increase the policy rate to get inflation back to two per cent,” Macklem stated, underscoring the delicate balance the central bank must maintain amid these pressures.
Shifting Perspectives on Economic Risks
Interestingly, the focus on geopolitical risks marks a significant change from the Bank’s previous survey conducted at the end of 2025, where trade tensions were the primary concern, cited by 93% of respondents. At that time, geopolitical risks did not even feature among the top three threats identified. This stark contrast highlights an evolving landscape in which global events are increasingly shaping economic outlooks.
Why it Matters
The findings of this survey underscore the interconnectedness of global events and their potential to disrupt the Canadian economy. As geopolitical tensions rise, businesses must navigate an increasingly complex landscape that could affect everything from supply chains to consumer prices. Understanding these dynamics is crucial for policymakers and industry leaders alike, as they devise strategies to mitigate risks and ensure economic stability in a world marked by uncertainty.