Canadian Businesses Anticipate Growth Amidst Uncertainty
Despite lingering concerns about the impact of US policies, Canadian firms are optimistic about the future, driven by recent interest rate cuts and expectations of further easing. According to the Bank of Canada’s fourth-quarter business outlook survey, overall business sentiment remains subdued, but there are signs of improvement.
Rate Cuts Fuel Demand and Sales
The survey reveals that firms expect sales growth to improve over the coming year, largely due to recent interest rate reductions and the anticipation of further cuts ahead. This optimism is reflected in the business outlook indicator, which has improved to -1.18, its best standing in the last five quarters, although still below average.
Recession Fears Ease
Only 15% of firms are now planning for a recession in Canada over the coming year, down from 16% in the third quarter. This reduction in recession fears is a welcome sign, indicating that businesses are becoming more confident in their prospects.
Investment Intentions Improve
Firms’ intentions to increase investment over the coming year have become more widespread and are well above their historical average. However, uncertainty linked to US trade policy is holding back companies from committing investments, although the energy sector is likely an exception.
Pricing and Employment Trends
Companies anticipate that their selling prices will grow over the next 12 months, but improved demand conditions will allow them to pass through cost increases and restore margins. In terms of employment, a larger-than-normal share of firms plan to keep employment levels roughly flat over the coming year, but they do not see a need to reduce staff.
Economic Context
Canada’s economy added nearly four times the number of jobs forecast in December, reaching its highest number in almost two years. However, unemployment remains at historically high levels, highlighting the ongoing challenges facing the economy.
Uncertainty Remains
Despite the positive trends, uncertainty about the potential fallout of US policies remains a concern. A separate online poll of business leaders showed that 40% of respondents expected the effects to be negative. The Bank of Canada has cut rates by a total of 175 basis points since June to spark a weak economy and counter rising unemployment.
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