Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectations (2024 Q4)
Maria Solovieva, CFA, Economist | 416-380-1195
Date Published: January 20, 2025
- Category:
- Canada
- Data Commentary
Canadian firms and consumers paint a cautiously positive outlook in Q4 2024.
- According to the Bank of Canada Business Outlook Survey (BOS), Canadian business sentiment remained below its historical average though it saw "signs of emerging optimism" in the fourth quarter of 2024. The BOS indicator, a statistical summary of survey results, was -1.18 in 2024 Q4 (vs. -2.29% in 2024 Q3), marking a fifth quarter of improvement.
- The survey was conducted between November 7 and 27, 2024 – a period that included the U.S. presidential election. When asked about the expected impact of the new U.S. administration, 40% of respondents anticipated negative effects, while one-third responded that it was too early to tell.
- Businesses continue to report soft demand as consumers remain cautious. Nevertheless, expectations of future sales have improved slightly and are now better than a year ago and slightly above the historical average.
- Investment intentions also continued to rise and are now well above their historical average. Robust investment sentiment in the energy sector is driven by increased oil flow from the TMX pipeline and the launch of LNG Canada’s Phase 1, which is boosting expected capital expenditures among natural gas producers over the coming year. However, some firms remain cautious due to uncertainty surrounding U.S. trade relations.
- Capacity and labour constraints continued to ease, primarily due to soft demand. Businesses appear to have adopted a "wait-and-see" approach, with a high proportion of firms planning to keep employment levels roughly flat over the coming year.
- Wage pressures are expected to ease further, though some firms indicated that improving demand conditions may allow them to pass through cost increases to consumers. As a result, 20% of respondents expect inflation to exceed 3% over the next two years, up from 15% last quarter.
- According to the parallel Canadian Survey of Consumer Expectations (CSCE), consumers' sentiment also remained subdued but showed modest improvement compared to the previous quarter.
- The improvement was largely driven by better perception of their financial situation, supported by lower interest rates and expectations for continued rate cuts. Echoing the BOS, consumers reported stronger spending plans, with many now expecting their spending to grow faster than prices. Similarly, more consumers expect to buy a home, anticipating easier credit conditions.
- Despite these positive improvements, over half of consumers still expect a recession in the coming year. However, their major concern has shifted from high interest rates to government policies.
- Consumer expectations of wage growth over the next 12 months remained unchanged at 2.7%, while the perceived probability of job loss increased. Meanwhile, consumers' inflation expectations continued to decline, falling to historical norms for the next year and returning to their pre-pandemic levels for the 2- and 5- year outlooks.
Key Implications
- Today’s surveys showed marginal improvement in sentiment. On the business side, the positive news is that investment intentions have picked up, especially in the energy sector. Rising expectations for future sales suggest that businesses remain on solid footing as they head into 2025. Still, there is a sense of tense anticipation, as looming threat of tariffs runs as a common threat throughout the BOS survey.
- On the consumer side, a substantial reduction in interest rates and ongoing easing of price pressures appear to have bolstered sentiment. Most importantly, consumer inflation expectations have finally aligned with the Bank of Canada's target of 2%. On balance, there remains a case for the Bank of Canada to lower its policy rate at the January 29th meeting. Additionally, the Monetary Policy Report accompanying the decision should offer insights into how the Bank is assessing trade-related uncertainties that are likely to exert a headwind on its growth outlook.
Disclaimer
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