Business confidence continues to weaken in Canada

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Rising interest rates are dampening firms’ sales expectations and plans to invest…reports Asian Lite News

The Bank of Canada said on Monday that business sentiment has continued to weaken in the country.

The central bank revealed the results from the fourth-quarter 2022 Business Outlook Survey (BOS) and the Business Leaders’ Pulse surveys from October 2022 through January 2023 ahead of its first interest rate decision of 2023 next week.

Rising interest rates are dampening firms’ sales expectations and plans to invest. Firms also link their weaker outlook on demand to high inflation eroding consumers’ spending power and to the possibility of a recession. More businesses than usual expect their sales to decline, the central bank said.

Results for almost all survey questions used to calculate the BOS indicator have decreased. The BOS indicator declined this quarter to roughly zero. This level is slightly below the average of the past 10 years, suggesting business confidence is somewhat weaker than usual, the central bank said.

According to the survey, while most firms expect Canada to be in a recession within the next 12 months, the majority of those firms think it will be mild. They are not currently making any major changes to their operations in anticipation of a possible recession. Still, some businesses are tightening budgets or pausing expansions. A few firms think a recession will ease supply chain challenges, labor shortages and cost pressures. Most businesses see the causes of a recession being interest rate increases and high prices reducing households’ capacity to spend.

The central bank delivered both the largest cumulative rate hike, 400 basis points in 2022, and the highest policy rate, 4.25 percent. Market analysts expected a mild 25 basis point increase on Jan. 25.

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