Business Confidence Hits Post-Pandemic Low in Canada


According to a recent survey conducted by the Bank of Canada, business confidence in the country has reached a new low in the third quarter. Companies are reporting a decline in sales outlook and are facing difficulties in meeting short-term financial commitments due to higher interest rates.

Inflation expectations among surveyed companies have slightly eased but still remain historically high. Around 53% of businesses anticipate the consumer-price index to reach 3% or more over the next two years.

The Bank of Canada released the results of its quarterly Business Outlook Survey, which is closely reviewed by senior officials before making any interest-rate decisions. The next decision is scheduled for October 25th. In its previous announcement, the Bank of Canada decided to keep the benchmark interest rate stable at 5%, citing a weaker phase in the economy. However, concerns about persistent inflationary pressures remain, and the central bank stands ready to raise rates if necessary.

Governor Tiff Macklem reiterated these concerns in a recent briefing with reporters, highlighting that the increase in long-term rates in financial markets cannot replace a rate-policy focused on maintaining inflation at the central bank’s target of 2%.

September’s inflation data will be released on Tuesday. In August, inflation reached 4%, surpassing the 3% mark seen in June. The Bank of Canada adjusts interest rates to achieve and sustain 2% inflation. As a response, rates have been increased by 4.75 percentage points since March of last year, making it one of the most assertive rate-hiking campaigns among developed nations’ central banks.

Canadian Companies Struggle with Higher Interest Rates

Majority of Canadian companies negatively affected by higher interest rates

According to a recent survey, over 70% of Canadian firms in the goods and services sectors have reported negative impacts due to higher interest rates. While most businesses feel confident about their ability to repay existing debts, those who rely heavily on interest rates for their operations are facing greater challenges in meeting their short-term financial obligations.

Slowing consumer demand puts pressure on businesses

The survey also revealed a notable decline in consumer demand, with one-third of respondents reporting a decrease in sales over the past year. Sales inquiries and order books indicate a deteriorating outlook for sales in the coming year compared to the previous quarter. However, despite these challenges, 42% of companies remain hopeful, expecting an increase in sales volume, while 28% anticipate a decline.

Business confidence hits a decade-low

The survey’s indicator of business confidence has dropped to -3.51, reaching its lowest level in over a decade, excluding a brief period during the early stages of the COVID-19 pandemic. This decline is primarily attributed to weaker indicators of future sales, reduced hiring plans, and investment intentions among companies.

Capital spending and hiring intentions affected

Approximately one in three businesses expect a reduction in capital spending within the next year due to tighter credit conditions. Additionally, hiring intentions are below the historical average. However, it is worth noting that only 12% of companies plan to cut staff despite these challenges.

It is evident that higher interest rates have presented significant challenges for Canadian businesses across various sectors. The survey highlights the need for careful financial planning and adjustments to adapt to the current economic landscape.

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