By Promit Mukherjee and David Ljunggren
OTTAWA, Jan 20 (Reuters) – Canadian businesses see improving demand and sales in the coming year, driven largely by rate cuts, but are concerned about the 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 remains subdued. The BoC is closely monitoring the survey as it provides insight into companies’ investment and hiring intentions.
The business outlook indicator – a metric of prospects under current economic conditions – improved to -1.18, its best position in the last five quarters, but continued to be below average.
Only 15% of companies are planning for a recession in Canada over the next year, down from 16% in the third quarter, he said.
“After a period of weak demand, companies expect their sales growth to improve over the next year. This expectation is largely driven by recent interest rate reductions and the anticipation of further cuts in the future” , said.
The outlook was held from Nov. 7 to Nov. 27, before the bank’s most recent 50 basis point cut on Dec. 11. US President Donald Trump promised on November 25 to impose a 25% tariff on all Canadian imports when he takes office.
A separate online survey of business leaders that the central bank conducted in December showed widespread uncertainty about the potential consequences of U.S. 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 a bid to revive a weak economy and counter rising unemployment. Rates had hit a two-decade high of 5% before the bank began easing policy.
“Business intentions to increase investment over the next year are broad-based and well above their historical average,” the Bank of Canada said in the survey.
But he warned that uncertainty linked to US trade policy was preventing companies from committing investments, although the energy sector was likely to be an exception.
Companies reported that over the next 12 months they anticipate their selling prices will increase, but improved demand conditions will allow them to overcome cost increases and restore margins.
The survey noted that a larger-than-normal proportion of companies plan to keep employment levels broadly stable over the next year. However, they also do not see the need to reduce staff.
Canada’s economy added almost four times the number of jobs expected in December and hit its highest figure in almost two years, but unemployment has remained at historically high levels.