By Promit Mukherjee and David Ljunggren
OTTAWA, Jan 20 (Reuters) – Canadian firms see improved demand and sales in the approaching 12 months, largely fueled by rate cuts, but are concerned concerning the potential damage from promised U.S. policies, the Bank of Canada said on Monday.
The Bank’s fourth quarter business outlook survey said overall business sentiment remained subdued. The survey is closely watched by the BoC because it gives a perspective on investment and hiring intentions of corporations.
The business outlook indicator – a metric of prospects under current economic conditions – improved to -1.18, its best standing within the last five quarters but continued to be below average.
Only 15% of firms at the moment are planning for a recession in Canada over the approaching 12 months, down from 16% within the third quarter, it said.
“After a period of weak demand, firms expect their sales growth to enhance over the approaching 12 months. This expectation is essentially driven by recent rate of interest reductions and the anticipation of further cuts ahead,” it said.
The outlook was carried out from Nov 7-27, before the bank’s most up-to-date 50 basis point cut on Dec 11. U.S. President Donald Trump promised on Nov 25 to impose a 25% tariff on all Canadian imports when he took office.
A separate online poll of business leaders the central bank carried out in December showed widespread uncertainty concerning the potential fallout of U.S. policies, with 40% of respondents saying they expected the consequences to be negative.
The bank has cut rates by a complete of 175 basis points since June in a bid to spark 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 extend investment over the approaching 12 months have turn into more widespread and are well above their historical average,” the BoC said within the survey.
Nevertheless it cautioned that uncertainty linked to the U.S. trade policy was holding back corporations from committing investments, although the energy sector was likely an exception.
Firms reported that over the following 12 months they anticipate their selling prices will grow but improved demand conditions will allow them to go through the price increases and restore margins.
The survey noted that a larger-than-normal share of firms plan keep employment levels roughly flat over the approaching 12 months. Nonetheless, additionally they don’t see need to scale back staff.
Canada’s economy added nearly 4 times the variety of jobs forecast in December and reached its highest number in almost two years, But unemployment has continued to be at historically high levels.