OTTAWA – Business sentiment and sales growth expectations have stopped falling this quarter, according to firms responding to the Business Outlook Survey and the Business Leaders’ Pulse, the Bank of Canada announced Tuesday.
However, demand remains subdued, which is allowing price pressures and the labour market to ease, meaning fewer firms than in last quarter’s survey are planning unusually large or frequent price increases over the next 12 months.
The Bank of Canada report states that companies reported that demand remains weak overall, but there are some signs of returning optimism. Particularly in indicators of business conditions, sales outlooks and employment intentions.
Expectations for improved sales are supported by population growth, efforts to enter new markets or develop new products, and expectations that interest rates will decline over the next 12 months.
“Businesses are moderating their investment plans in response to high borrowing costs, persistently weak demand and easing capacity pressures. In this environment, fewer firms feel the need to expand. Instead, more businesses are focusing their investment on maintaining existing capacity,” the report states.
“Firms are finding it easier to fill job vacancies. Wage growth remains high, although most businesses expect it to slow as wages catch up with cost-of-living increases. Businesses’ pricing behaviour is continuing to normalize. But the slow moderation in wage growth and the gradual pass-through of high costs are keeping output price growth elevated.”
The report also states that business sentiment remains weak but is showing signs of improvement.
“Firms reported that business conditions improved slightly in the first quarter. The uptick in sentiment follows nearly two years of deterioration and is reported widely across nearly all regions, sectors and firm sizes. Moreover, fewer businesses than last quarter are planning for a recession in Canada over the next 12 months.”
It adds that fewer businesses are reporting binding capacity constraints—namely labour shortages and supply chain challenges—while their main concerns continue to shift toward demand, uncertainty and credit.
“Cost pressures also remain a top concern, with nearly half of all firms still reporting larger-than-normal increases in their costs. And more businesses than in previous quarters reported taxes and industry-specific or localized regulations as a pressing concern.”
Interest rate concerns remain, as “sales growth over the past year has been sluggish, particularly for firms tied to discretionary consumption or residential real estate” and the sales outlooks for the next 12 months suggest that “economic activity will remain subdued.”
Business Examiner Staff
