Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectations (2024 Q1)

Maria Solovieva, CFA, Economist | 416-380-1195  

Date Published: April 1, 2024

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Business and consumer sentiment improve slightly in the first quarter of 2024

  • According to the Bank of Canada Business Outlook Survey (BOS), Canadian business sentiment remained downbeat but shows signs of improvement in the first quarter of 2024. The BOS indicator, a statistical summary of survey results, was -2.42 in 2024 Q1, up slightly from -3.09 in 2023 Q4. 
  • The share of firms preparing for a potential recession in the coming year declined to 27.2% (from 37.6%) with concerns continuing to shift to weaker demand, economic uncertainty, and credit, rather than labour shortages and supply chains. 
  • Firms’ indicators of future sales remained weak relative to its historical average and suggests that economic growth will remain sluggish. As a result, business investment intentions have weakened dropping to 0% (lower than the historical average of 16%). Nevertheless, there are signs of renewed optimism over the forthcoming year, as some firms (i.e. in the housing sector) are anticipating improvement in sales attributable to their expectations of lower rates.  
  • Meanwhile, weaker consumer demand is driving lower expectations for price gains and wage growth, which should help support disinflationary pressures. Still, as the Bank of Canada points out, at 4.1%, planned wage adjustments remain higher than average, so it will take time for wage setting to normalize. 
  • Fewer firms expect inflation to persist above 2% beyond three years  (27% v. 37% last quarter).
  • Results in the parallel Canadian Survey of Consumer Expectations (CSCE) suggest that consumers also feel more optimistic about the economy and fewer think that they will need to reduce spending.  
  • Stronger sentiment is also evident in consumers' perception of the jobs market and their overall  expectations for wage growth roughly unchanged at a high level.
  • The perception of current inflation cooled slightly to 5.3% from 5.9% in Q4 2023, reflecting changes in price growth for food and gas – the most frequently purchased items. Meanwhile, expectations for inflation in the long-term increased for the first time since 2022, while remaining below the historical average.      

Key Implications

  • Today's surveys suggest that businesses and consumers view their economic perspective in a more optimistic light. While demand remains under pressure due to high inflation and high interest rates, expectations of lower interest rates provide more confidence about the future economic outlook. 
  • Upon examining price sentiment, today’s surveys do not indicate that the Bank of Canada will be pressured to cut rates next week. Similarly, we do not anticipate any significant downturn in the two data releases preceding the Bank’s decision next week, namely international merchandise trade and employment. Consequently, we expect the Bank to maintain a policy rate of 5%, allowing the effects of past rate hikes to permeate the economy a little longer.