Bank of Canada Business Outlook and Consumer Expectations Surveys | Q2 – 2022

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Bank of Canada Recent Economic Surveys

Every Quarter, the Bank of Canada releases its Business Outlook Survey and Consumer Expectations Survey to analyze Canadian businesses and individuals’ general perceptions and current operations. The two combined allow the Bank of Canada to forecast future market trends and gather a broad range of economic perspectives.

Below, find the general consensus and overview of both surveys, released on July 4th, 2022. 

The next Bank of Canada Rate announcement will be on July 13th, 2022.


Bank of Canada Q2 Business Outlook Survey

After interviewing 100 firms; the general takeaways consisted of:

  • Increased supply chain disruptions.
  • Demand outweighs supply.
  • An increased need to reconsider long-term investment strategies.
  • Need to find new ways to increase productivity
  • Labour shortages are rising and the need to retain and incentivize current employees during high inflation remains omnipresent.

Many businesses said their non-wage compensation (e.g., vacation days, health benefits, the ability to work remotely) is more generous than it was before the pandemic. They noted this shift is to help retain staff and improve productivity (e.g., by reducing the number of sick days).


Overview 

  • Many businesses continue to expect strong sales growth. An increasing number of these firms expect the pace of growth to return to normal following a fast recovery from the pandemic. Some firms also anticipate that labour shortages will limit growth in their sales. 
  • The number of businesses reporting labour-related constraints and supply chain bottlenecks remains at a record high. Suggesting that supply is not keeping up with demand. About half of firms with supply chain challenges expect them to persist until the end of 2023 or beyond. 
  • Supported by strong demand, many firms intend to increase their investment spending and add staff over the next year. A few businesses mentioned that the prices of capital goods along with rising interest rates may potentially affect the viability of their capital expenditure plans. Such factors are not yet holding them back. 
  • As in recent surveys, many businesses anticipate significant wage and price increases. Pressures on input and output prices continue to be linked to supply chain issues. 
  • Businesses’ expectations for near-term inflation have increased. Firms expect inflation to be high for longer than they did in the previous survey. Still, most see inflation returning to 2% over time. They noted various factors needed for inflation to return to target. Including higher interest rates, improved supply chains, lower oil prices and a resolution of the war in Ukraine. 
  • Consultations with firms and experts in the energy sector suggest that growth in capital expenditures will be robust but less than in previous commodity price booms.

Demand is outstripping supply

Due to a combination of sustained growth in demand and challenging supply conditions, indicators of capacity pressures suggest the presence of excess demand in the economy. The number of businesses reporting labour-related constraints and supply chain bottlenecks remains elevated.


Firms expect strong but somewhat slower sales growth

Expectations that sales growth will moderate are widespread. Firms largely attribute this softening to a shift toward normal demand conditions. After an exceptionally rapid recovery from the pandemic for some. Still, these businesses continue to expect strong growth, supported by improved order books and increased sales inquiries from domestic and foreign customers. Businesses with slowing sales growth are mainly linked to housing, natural resources and transportation. Some firms also anticipate that labour-related constraints will limit their sales growth.

Other businesses expect their sales to grow faster over the next year. These include firms that were hit hard during the pandemic, such as those tied to hard-to-distance services. They attribute their positive outlook to eased restrictions and pent-up demand.


Firms plan to invest more and hire in response to ongoing strong demand

The number of firms intending to increase their investment spending remains high. Their plans continue to be supported by:

  • Strong domestic and foreign demand
  • Long-term strategic plans
  • A need to expand capacity or improve productivity, often through digitalization and automation amid labour shortages

The majority of firms intend to increase investment spending and add staff


Canadian Survey of Consumer Expectations

Overview 

  • Consumers’ expectations for inflation have risen, alongside concerns about prices for food, gas and rent. Short-term expectations are at record-high levels. Long-term inflation expectations increased significantly in the second quarter of 2022, returning to the levels they were at before the COVID‑19 pandemic. 
  • Most people believe the Bank of Canada can achieve its inflation target. However, some think the process of bringing inflation down will be difficult for the Bank of Canada. 
  • Expectations for higher inflation and rising interest rates are affecting consumer confidence. In response to such factors, Canadians plan to cut spending. They are seeking out more-affordable options when shopping. 
  • People anticipate that wage gains will remain modest. However, workers in the private sector have higher expectations for wage growth than those in the public sector. Flexible work arrangements could attract more people into the labour force. Some consumers reported that working from home helps offset the costs of higher inflation.

Canadians think supply chain issues, the COVID‑19 pandemic and elevated government spending are driving high inflation. These factors are also seen as more persistent than in recent quarters. For example, more people now think it will take longer than two years to resolve supply issues. Some consumers believe the war in Ukraine is far from over and will lead to lasting higher prices for food and gas. Overall, Canadians are more uncertain now about how inflation will evolve, and survey respondents are more likely to have opposing views.


The Bank of Canada and how its recent decisions affect your mortgage

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