Highlights
Sentiment among companies in Canada declined for the fifth straight quarter in January-March amid a subdued sales outlook and plans for modest growth in capital expenditures, the Bank of Canada's quarterly Business Outlook Survey released Monday showed.
The bank's business sentiment indicator fell to minus 1.1 in the first three months of 2023 from 0.06 (revised from 0.07) in the final quarter of 2022, and is well below the record high of 5.91 hit in the fourth quarter of 2021.
The labour market remains tight, but pressures have eased from high levels, the bank said.
Firms' inflation expectations have moderated, but most businesses still think inflation will stay well above 2 percent until at least 2025, the survey found. Of the firms that expect inflation to be back to 2 percent before 2025, many think the return will be the result of monetary policy actions the bank has taken over the past 12 months.
Interviews for the Business Outlook Survey were conducted before pressures on the global banking system increased in early March. Results from the Business Leaders' Pulse suggest that business sentiment has not changed much since then, according to the bank.
"For many firms, this slowdown will follow a period of exceptional strength over the past year," the bank said."Businesses also link their expectations of weaker sales growth to interest rate increases, high inflation and concern about a recession."
Some firms, mostly those whose sales depend on housing activity and household consumption, expect outright sales declines, but the share of these firms is smaller than in the previous survey.
Generally, businesses plan to invest more in the next 12 months, the bank said but added that positive investment intentions have decreased in each quarter since early 2022,"reflecting the impact of higher interest rates and recession worries."
Firms continue to view the labour market as tight, though labour shortages and wage growth pressures have eased. Demand for labour has softened over the past several quarters but continues to be robust -- more than half of firms still plan to increase their workforce over the next 12 months.
Businesses anticipate that their input and output price increases over the next year will remain larger and more frequent than usual, but as supply and demand continue to normalize, firms expect the size and pace of output price increases to moderate from those over the past 12 months.
"This suggests that firms are gradually shifting closer to their normal price-setting practices," the bank said.
The bank's business sentiment indicator fell to minus 1.1 in the first three months of 2023 from 0.06 (revised from 0.07) in the final quarter of 2022, and is well below the record high of 5.91 hit in the fourth quarter of 2021.
The labour market remains tight, but pressures have eased from high levels, the bank said.
Firms' inflation expectations have moderated, but most businesses still think inflation will stay well above 2 percent until at least 2025, the survey found. Of the firms that expect inflation to be back to 2 percent before 2025, many think the return will be the result of monetary policy actions the bank has taken over the past 12 months.
Interviews for the Business Outlook Survey were conducted before pressures on the global banking system increased in early March. Results from the Business Leaders' Pulse suggest that business sentiment has not changed much since then, according to the bank.
"For many firms, this slowdown will follow a period of exceptional strength over the past year," the bank said."Businesses also link their expectations of weaker sales growth to interest rate increases, high inflation and concern about a recession."
Some firms, mostly those whose sales depend on housing activity and household consumption, expect outright sales declines, but the share of these firms is smaller than in the previous survey.
Generally, businesses plan to invest more in the next 12 months, the bank said but added that positive investment intentions have decreased in each quarter since early 2022,"reflecting the impact of higher interest rates and recession worries."
Firms continue to view the labour market as tight, though labour shortages and wage growth pressures have eased. Demand for labour has softened over the past several quarters but continues to be robust -- more than half of firms still plan to increase their workforce over the next 12 months.
Businesses anticipate that their input and output price increases over the next year will remain larger and more frequent than usual, but as supply and demand continue to normalize, firms expect the size and pace of output price increases to moderate from those over the past 12 months.
"This suggests that firms are gradually shifting closer to their normal price-setting practices," the bank said.
Definition
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.
Description
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.
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.
