(Ottawa) Canadian business confidence continued to weaken in the third quarter, according to the Bank of Canada’s latest business outlook survey, as companies said they expected sales growth to slow over the of the coming year.
The Bank of Canada said Monday that its business outlook survey indicator had fallen to its lowest level in more than a decade, except for a brief period at the start of the COVID-19 pandemic. 19, during which the economy was at a standstill.
“This slowdown in demand eases pressures on their production capacity and hampers their investment and hiring plans,” the central bank said in its report.
The survey finds that the negative effects of rising interest rates are spreading, and a growing number of businesses believe that higher rates will limit their sales and investments.
A third of responding companies indicated that their sales had fallen over the past year due to a general slowdown in demand.
The survey also suggests that businesses’ inflation expectations have fallen slightly, although they remain above pre-pandemic levels. She points out that many expect it will take more than three years for inflation to return to the Bank of Canada’s 2.0% target.
The share of businesses forecasting a recession in the coming year remained stable at around a third.
Separately, the Bank of Canada’s Canadian Consumer Expectations Survey suggests that consumers still expect inflation to remain high over the next 12 months, and that the gap between their perceptions and actual inflation is unusually wide.
According to this survey, the rising cost of living remains the most pressing concern of consumers, many of whom believe that the impact of rising interest rates on households is far from over.
“Those who expect more adverse effects are less likely to plan large purchases,” the consumer report says.
“Overall, respondents say they are more likely to make non-essential purchases, such as vacations or concert tickets, than to purchase items that are usually financed with a loan, such as a vehicle or household appliances. »
Bank of Montreal economist Shelly Kaushik noted in a note to clients that “the Bank of Canada’s aggressive rate hikes [were] working as expected, with businesses and consumers expecting a slowdown in activity.”
“However, policymakers will take note that inflation and wage expectations remain well above target and are only slowly falling. The overall pessimistic tone of these surveys supports our call for the bank to remain on hold, with a bias toward tightening, at its meeting next week. »
Economist Maria Solovieva of TD Bank noted that one concern in the report was that some companies continued to pass on unusually large cost increases from earlier in the pandemic to their customers.
“On the other hand, according to the bank’s own research, the extent of the pass-through depends on competitive pressures in the market and the strength of consumer demand, both of which become less favorable,” Ms. Solovieva wrote .
The next interest rate decision and monetary policy report from the Bank of Canada is scheduled for October 25.
The central bank kept its key interest rate at 5% last month, but has repeatedly indicated it is prepared to raise rates again if necessary to return inflation to its 2.0% target. .
Annual inflation reached 4.0% in August, according to Statistics Canada data. The federal agency is due to publish consumer price figures for September on Tuesday.