Promit Mukherjee and David Ljunggren
OTTAWA, Jan 20 (Reuters) – Canadian companies see improved demand and sales in the coming year, largely boosted by rate cuts, but are concerned about potential damage from promised U.S. policies, the Bank of Canada said on Monday.
The Bank’s fourth-quarter business outlook survey said overall business sentiment remained muted. The BoC is watching the survey closely as it provides an outlook on investment and firms’ hiring intentions.
The Business Outlook Indicator – a metric of the outlook in current economic conditions – improved to -1.18, its best position in five quarters, but still below average.
Only 15% of businesses now plan for a recession in Canada in the coming year, down from 16% in the third quarter, the report said.
“After a period of weak demand, companies expect their sales growth to improve in the coming year. This expectation is largely fueled by the recent cut in interest rates and the anticipation of further cuts in the future,” it said.
The outlook was conducted from November 7 to 27, before the bank’s latest cut of 50 basis points on December 11. US President Donald Trump promised on November 25 to impose a 25% tariff on all Canadian imports when he takes office.
A separate online survey of business leaders by the central bank in December showed widespread uncertainty about the possible consequences of US policies, with 40% of respondents saying they expected the effects to be negative.
The bank has cut rates by a total of 175 basis points since June in an attempt to boost the weak economy and counter rising unemployment. Rates hit a two-decade high of 5% before the bank began easing policy.
“Firms’ intentions to increase investment over the coming year have become more widespread and are well above their historical average,” the BoC said in the survey.
But it warns that uncertainty related to US trade policy is holding companies back from investing, although the energy sector is likely to be an exception.
The companies reported that over the next 12 months they expect their selling prices to rise, but improved demand conditions will allow them to pass through cost increases and restore margins.
The survey noted that a higher-than-usual share of companies plan to keep employment levels roughly unchanged over the next year. However, they also do not see the need to reduce the number of employees.
Canada’s economy added nearly four times more jobs than forecast in December to the largest number in nearly two years, but unemployment remains at historically high levels.
(Editorial Reuters Ottawa)
