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CA: BoC Business Outlook Survey
| Actual | Previous | Revised | |
| Business Outlook Indicator | -1.78 | -2.28 | -2.27 |
Highlights
Amid ongoing trade-related uncertainty, business sentiment in Canada remains subdued, with the fourth quarter 2025 Business Outlook Survey (BOS) index still in negative territory at minus 1.78, up from minus 2.27 (revised from minus 2.28) in the third quarter based on interviews conducted by the Bank of Canada between November 6 and 26.
Demand is expected to remain soft, including modest exports, consistent with plans to maintain or reduce staffing. Investment intentions improved slightly, but with a focus on maintenance given ongoing economic uncertainty.
Against this backdrop, inflation expectations remain roughly stable between 2.5 percent and 3 percent, which is likely to translate into a status quo at the next monetary policy meeting since the central bank has signaled it is only ready to act if changes to its outlook were material.
Earlier today, Statistics Canada reported that inflation picked up to 2.4 percent in December from 2.2 percent in November, with the core index excluding food and energy, rising 2.5 percent.
While above the 2 percent target, the year-over-year inflation rate was driven up by tax effects as a temporary GST/HST break on certain items was in effect from December 14, 2024, to February 15, 2025. The tax exemption affects around 10 percent of the CPI basket.
This effect is already factored in by the Bank of Canada, which said in the minutes of its December meeting that in the next few months, CPI inflation is likely to rise slightly. Year-over-year CPI inflation rates of some goods and services components would be higher because the prices had temporarily dropped during the GST/HST holiday a year ago. As a result, the central bank signaled it would look through the short-term volatility.
The BoC's own core measures of inflation, which remove the effect of changes in indirect taxes, slowed down for the third consecutive month, to an average of 2.7 percent in December from 2.8 percent in November, 2.9 percent in October and 3.0 percent in September.
The Canadian Survey of Consumer Expectations released with the BOS shows concerns over high prices and tariff-related economic uncertainty.
Consistent with firms' expectations of softer demand, consumers reported weak spending plans despite expectations of a slight improvement in labor market conditions. They report a higher chance of voluntarily leaving a job or finding a job. Still, consumers continue to see a higher chance of losing their job.
On the business side, some firms relying on household spending, including in the housing sector, have a pessimistic outlook.
The survey also shows that most businesses depending on sales to the U.S. have yet to diversify into non-US markets, citing diverse barriers such as regulations, transportation costs or specialized investment needs.
In the oil and gas sector, low prices are dragging sentiment, with capital expenditure expected to decline this year by 1.7 percent. Production, however, is expected to rise, driven by natural gas and oil sands.
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.