itstargetnews
By Promit Mukherjee and David Ljunggren
OTTAWA, Jan 20 (Reuters) – Canadian companies see demand and sales improving next year, largely boosted by rate cuts, but are worried about potential damage from promised U.S. policies, the Bank of Canada said Monday.
The Bank’s fourth-quarter business outlook survey indicated that overall business sentiment remained subdued. The survey is closely watched by the BoC as it provides insight into the investment and hiring intentions of businesses.
The Business Outlook indicator, a gauge of outlook in current economic conditions, improved to -1.18, its best position in five quarters, but remained below average.
Only 15 per cent of businesses plan for a recession in Canada over the next year, down from 16 per cent in the third quarter, he said.
“After a period of weak demand, companies expect their sales growth to improve over the coming year. This expectation is largely driven by recent interest rate cuts and the anticipation of new cuts,” he said.
The forecast was carried out from 7 to 27 November, before the bank’s most recent cut of 50 basis points on 11 December. US President Donald Trump pledged on November 25 to impose a 25% tariff on all Canadian imports when he took office.
A separate online survey of business leaders conducted by the central bank in December showed widespread uncertainty about the potential consequences of US policies, with 40% of respondents saying they expected the effects to be negative
The bank has cut rates by a total of 175 basis points since June in an attempt to stir a weak economy and counter rising unemployment. Rates had hit a two-decade high of 5% before the bank began easing policy.
“Firms’ intentions to increase investment over the coming year have been widespread and are well above their historical average,” the BoC said in the survey.
But he warned that uncertainty over US trade policy was keeping companies from investing, although the energy sector was likely an exception.
The companies reported that over the next 12 months they expect their selling prices to grow, but improving demand conditions will allow them to overcome cost increases and restore margins.
The survey noted that a larger-than-normal share of businesses plan to keep employment levels roughly flat over the coming year. However, they also do not see the need to reduce the workforce.
Canada’s economy added nearly four times the number of jobs expected in December to its highest number in nearly two years, but unemployment has remained at historically high levels.
