The Bank of Canada building is pictured in Ottawa on Tuesday, Dec. 6, 2022. The Bank of Canada released its latest quarterly update on business sentiment. THE CANADIAN PRESS/Sean Kilpatrick
OTTAWA – The Bank of Canada’s business outlook survey indicator fell in the third quarter as companies expect sales growth to slow over the coming year.
The indicator summarizing business sentiment was at its lowest level in more than a decade, a report on the bank’s business outlook survey released Monday said, except for a brief period early in the COVID-19 pandemic when the economy was shut down.
“This slowdown in demand is … weighing on businesses’ plans for investment and employment,” the report said.
The survey found the negative effects of rising interest rates are spreading, with more businesses thinking higher rates will restrain both sales and investment plans.
A third of the firms responding said sales have fallen over the past year amid a widespread slowing of demand.
The survey also suggested that inflation expectations among businesses have edged down, though they remain above pre-pandemic levels.
It noted that many expect it will take longer than three years for inflation to return to the Bank of Canada’s two per cent target.
The share of companies planning for a recession in the coming year held steady at about one-third.
Meanwhile, the bank’s Canadian survey of consumer expectations suggested expectations of inflation remain elevated. The report noted the gap between perception and actual inflation is unusually wide.
It said the rising cost of living remains the most pressing concern for consumers and that many expect the impact of higher interest rates on households is far from over.
“Those expecting more adverse effects ahead are less likely to plan major purchases,” the consumer report said.
“Overall, consumers reported that they are more likely to spend on discretionary items like vacations and concerts than buy items usually financed with loans, such as cars or appliances.”
The pair of reports come ahead of the Bank of Canada’s interest rate decision and monetary policy report next week.
The central bank kept its key interest rate target on hold at five per cent last month but has said repeatedly that it is prepared to raise rates again if needed to bring inflation back to its target of two per cent.
Statistics Canada reported the annual inflation rate ticked up to four per cent in August, while the September reading is expected Tuesday.
This report by The Canadian Press was first published Oct. 16, 2023.
