Canadian companies foresee an upturn in demand and sales in the upcoming year, primarily driven by rate cuts, but express apprehension regarding potential harm from anticipated U.S. policies, as relayed by the Bank of Canada on Monday.
In the Bank's latest business outlook survey for the fourth quarter, it was observed that overall business sentiment remains restrained. The survey is closely monitored by the BoC as it provides insights into the investment and hiring plans of businesses.
The business outlook indicator, a measure of expectations given the current economic climate, improved to -1.18, the strongest in the last five quarters yet still below average.
As per the survey, only 15% of companies are preparing for a recession in Canada in the upcoming year, decreased from 16% in the third quarter.
The report mentioned, "After facing subdued demand, companies anticipate an enhancement in sales growth over the next year. This positive outlook is mainly attributed to recent interest rate cuts and expected future reductions."
The survey was conducted from Nov 7-27, predating the bank's 50 basis point cut on Dec 11. Notably, on Nov 25, U.S. President Donald Trump pledged a 25% tariff on Canadian imports upon taking office.
A separate online poll of business executives held by the central bank in December revealed widespread uncertainty about the potential repercussions of U.S. policies, with 40% of respondents foreseeing adverse effects.
In a bid to stimulate a sluggish economy and combat escalating unemployment, the bank has slashed rates by a total of 175 basis points since June. Rates had peaked at 5% two decades ago before the bank initiated policy easing.
The BoC mentioned in the survey, "Companies are increasingly planning to boost investments in the upcoming year, surpassing historical averages." However, uncertainty related to U.S. trade policies is impeding firms from solidifying investments, except for the energy sector.
Expecting growth in selling prices over the ensuing 12 months, companies anticipate that improved demand conditions will enable them to pass on cost hikes and restore profit margins.
The survey highlighted that a higher proportion of companies plan to maintain employment levels relatively stable over the following year, without contemplating staff reductions.
In December, Canada's economy added nearly fourfold the projected number of jobs, reaching a two-year peak. Nonetheless, unemployment persists at historically high levels.