Bank of Canada business outlook survey: Business sentiment sinks

  • Sentiment fell every month in Q4, from 22% at the start of the quarter to 9% at the end
  • 38% of firms expect a recession in the year ahead vs 33% in Q3
  • 54% of firms expect inflation to remain above 3% for the next two years vs 53% in Q3
  • 75% of firms think wage growth will be back to normal by 2025
  • Consumer survey inflation expectations for 5 years to 2.62% from 2.75%
  • Future sales 20% vs 14%
  • Indicators of future sales vs a year ago -10% vs 0% prior
  • Firms see slight improvement in labor availability

Wage growth metrics are improving.

Inflation expectations from firms.

In the consumer survey, note that 5-year inflation expectations are below pre-covid levels.

The survey also showed that consumers are increasingly lowering spending because of inflation and interest rates.

All told, I see plenty of reasons in this survey for the Bank of Canada to cut rates. They meet next week and could very well signal a looming easing cycle. That said, I think they want to snuff out inflation completely rather than get ahead of slowing growth. That will ultimately prove to be a mistake.

This article was written by Adam Button at Source