The Bank of Canada wording on a Canadian $50 bill is pictured in Ottawa on Wednesday, Jan. 11, 2023.Sean Kilpatrick/The Canadian Press
Business sentiment in Canada continues to worsen with companies expecting sales growth to slow over the coming year and inflation to remain elevated until at least 2025, according to the Bank of Canada’s quarterly business survey.
At the same time, companies are reporting improvements in labour shortages and other supply constraints, while many expect wages to keep rising quickly.
The Business Outlook Survey and its companion Survey of Consumer Expectations, both published Monday, show Canadians remain nervous about the economy, despite stronger-than-expected growth at the start of 2023.
This should reinforce the Bank of Canada’s decision to pause further interest-rate hikes, and sets the central bank up to keep its benchmark rate at 4.5 per cent at the next monetary policy decision meeting on April 12.
Around half of the respondents to the business survey expect a mild recession this year, as higher interest rates curb consumer spending. Almost 60 per cent of the respondents to the consumer survey expect a “small” or “significant” economic decline over the next 12 months.
This aligns with the central bank’s forecast of near-zero growth over the first three quarters of 2023.
The bank is actively trying to engineer an economic slowdown to bring high inflation back under control. So far, however, the Canadian economy has proven surprisingly resilient in the face of eight rate hikes since March, 2022.
Statistics Canada reported last week that GDP grew 0.5 per cent in January compared with the previous month, and a preliminary estimate showed a further 0.3-per-cent growth in February. This was more than the central bank or Bay Street analysts were expecting.
“Today’s releases should encourage the Bank of Canada to remain on hold at its policy announcement next week,” James Orlando, Toronto-Dominion Bank’s director of economics, wrote in a note to clients Monday.
“Granted, GDP growth, employment data, and consumer spending have surged recently. But, if consumers and businesses adjust their behaviour in preparation of a slowdown, it becomes a self-fulfilling prophecy. This implies that the string of positive surprises won’t last much longer.”
The surveys were conducted in late January and February, which means they don’t capture any knock-on effects from the recent convulsion in the U.S. banking sector. However, follow-up interviews conducted by the central bank found that business conditions have not changed much as a result of the banking stress.
New surveys from the Bank of Canada suggest business and consumer expectations of future inflation are tracking down, but a potential recession continues to weigh on economic outlooks.Sean Kilpatrick/The Canadian Press
Canadian businesses and consumers continue to expect inflation to remain worryingly high, although these expectations have declined over the past several quarters alongside the actual fall in Consumer Price Index inflation. Annual CPI inflation was 5.2 per cent in February, down from a peak of 8.1 per cent last June.
The average respondent to the business survey expects inflation to be 3.9 per cent in two years’ time. That’s nearly twice the Bank of Canada’s 2-per-cent target.
Consumers, meanwhile, think that inflation will still be running at 4.27 per cent in two years. Most respondents blamed supply chain disruptions for high inflation, the Bank of Canada said, although many also pointed to high government spending.
The central bank cares about inflation expectations because beliefs about future prices can affect company price-setting decisions and employee wage demands in a self-fulfilling manner.
While many companies were downbeat about their future sales growth, business conditions have improved in several key areas. Crucially, labour shortages have become less intense and companies are less worried about meeting an unexpected surge in demand.
“Firms indicated that it has become easier to find the workers they need. They attribute this to less competition for labour and an improved labour supply,” the Bank of Canada said, pointing to increased immigration.
“For the first time in several quarters, businesses no longer expect labour costs to put upward pressure on their output price growth,” the bank added.
Even with less competition for workers, businesses still expect to raise wages quickly this year, by an average of 4.7 per cent. That’s down from a peak of 5.8 per cent in the second-quarter 2022 survey, but well above the prepandemic average of around 3 per cent.
Consumers remain upbeat about their job prospects, although they don’t think that their wages will keep up with inflation. They also reported feeling worse about their finances compared with previous periods of rising interest rates.
Canadians are being squeezed by a combination of rising prices and higher borrowing and debt-service costs. That’s leading some consumers to dial back spending plans.
“About one-third of consumers expect to travel less often, eat out less often and enjoy fewer paid entertainment or social activities in the next 12 months than they did in the previous 12 months. This is largely because of the high prices of these services and other essential purchases,” the bank said.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
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