business sentiment continues to weaken

Business sentiment continues to weaken

The Bank of Canada’s fourth-quarter 2022 Business Outlook Survey found business sentiment has continued to weaken. The Bank of Canada released the outlook Monday, which said rising interest rates have firms softening their sales expectations and investment plans.

They also found Amid softer demand and recent improvements in supply chain issues, pressures on businesses’ production capacity have eased from high levels.

“Firms continue to expect inflation to be above the Bank of Canada’s inflation target in the short term. Businesses anticipate slower growth in their input and output prices, mainly due to falling commodity prices and weakening demand. Many firms are gradually returning to price-setting practices they used before the pandemic. In particular, they are reducing the size and frequency of their price changes relative to the past year,” the report said.

Firms pointed to higher inflation for the weaker outlook on demand.  That’s because higher costs are eroding consumers’ spending power, and consumers are worried about the possibility of a recession. Most firms said they expect a recession in Canada within the next 12 months, but the majority thought it would be mild.

Meantime, a four quarter survey of Canadian consumers found they cut back on purchasing a wide range of goods and services thanks to rising inflation and higher interest rates.

“High food prices are a particular source of frustration for households. Most consumers anticipate a mild or moderate recession in the next 12 months. And although labour markets continue to be strong, some early signals suggest consumers think this strength will fade,” said the report.

Access to credit has worsened, and real wages have continued to decline. As a result, a growing share of Canadians plan to further cut or postpone purchases in the coming months.
Most consumers expect a mild to moderate recession in Canada within the next 12 months.

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