According to the Bank of Canada's winter Business Outlook Survey, Canadian companies are more optimistic about future sales as demand picks up and they plan to boost investment and hiring to keep pace. However, businesses are uncertain about the impact of U.S. protectionism. Few firms reported concrete effects of the U.S. election outcome on their sales expectations for the next 12 months, and the large majority have not yet taken any action in response.
Sales growth expectations over the next 12 months improved as the oil price slump has dissipated and demand from both domestic and U.S. buyers has picked up. Signs of future sales, including new orders, were more widespread than three months ago. But uncertainty about the outcome of the U.S. election, which affected the autumn survey, has given way to uncertainty about the measures that will be put in place by the incoming U.S. administration and their impact on Canadian businesses.
The great majority (94 percent) expected inflation to stay below or within the Bank of Canada's 1 percent to 3 percent target range and 71 percent expected it to stay at or under the actual 2 percent target.
Credit conditions were seen as essentially unchanged. Demand from corporate borrowers was unchanged, but that from small businesses and commercial borrowers decreased slightly.
The Bank of Canada's (BoC) publishes a quarterly Business Outlook Survey based on a summary of interviews conducted by the Bank's regional offices with the senior management of about 100 firms, selected in accordance with the composition of Canada's gross domestic product (GDP). The survey's purpose is to gather the perspectives of these businesses on topics of interest to the central bank (such as demand and capacity utilisation) and their forward-looking views on economic activity. Since the BoC is charged with keeping inflation within a specified target range, information on price pressures is watched particularly closely.
The outlook survey is used to evaluate economic conditions prior to four Board meetings a year where the BoC sets interest rate policy. Although monetary policy is announced eight times a year, these reports are available only on a quarterly basis. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
If the survey portrays an overheating economy or inflationary pressures, the Bank of Canada may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the survey portrays economic difficulties or recessionary conditions, the Bank of Canada may see the need to lower interest rates in order to stimulate activity.