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Bank of Canada Quarterly Survey | Rising sluggishness among businesses



Businesses and consumers are feeling down, according to the Bank of Canada’s latest probe. The result of these polls, which will influence the next decision on interest rates on January 25, is however likely to encourage the central bank in its fight against inflation.

Trust continues to crumble

Most companies responding to the Bank of Canada’s quarterly survey expect a recession this year. A greater number of them say they are concerned about the cost of credit, following the sustained rise in interest rates. Three in ten companies, a higher number than usual, expect their sales to decline, and several of them have already seen a drop in sales. Investment intentions are on the decline, held back by the increase in the cost of financing and by the uncertainty regarding the evolution of the economy. Among companies particularly affected by the level of interest rates, such as housing and household consumption, the pessimism is even greater.

Hiring intentions are falling

Hiring intentions are also down, which could take some pressure off the job market. The central bank has made it clear that further rate hikes are likely if the labor market continues to overheat.

Given the apprehended drop in demand for goods and services, fewer businesses want to hire employees. A growing number of companies indicate that the labor shortage is less intense, but the proportion of those suffering from the lack of employees remains high compared to the historical average.

Less pressure on prices

Another important element that will influence the central bank’s decision on January 25, supply chain problems have eased, found a large proportion of companies surveyed. Even better, half of respondents expect most supply chain issues to be resolved by the end of the year.

Inflation is here for good

The companies surveyed expect inflation to remain high over the next three years. It will take five years before the rate returns to the 1% to 3% target, most companies believe. They expect energy prices to remain high and labor costs to rise. They anticipate that the price of their inputs will increase more slowly, which will enable them to reduce the increase in the price of their products. On the other hand, wage growth remains a concern for companies, which are less likely to think of increasing them, which goes hand in hand with the moderation of hiring intentions.

The Bank of Canada has also taken the pulse of consumers, who are also convinced of the imminence of a recession. Many of them say they have reduced their expenses because of inflation and high interest rates. Rising food prices, on which monetary policy has little impact, are a major source of frustration, according to the survey.

A new Quebec Deputy Governor

It is Nicolas Vincent, professor of economics at HEC Montréal and researcher at CIRANO, who becomes the very first external Deputy Governor of the Bank of Canada. The native of Trois-Rivières has a mandate to provide central bank executives with an external and diversified point of view to improve their decision-making, a first in the history of the institution. He will be on the board of directors, but he will not be an officer of the Bank of Canada, although he fills a position vacated by deputy governor and officer Timothy Lane last September. The term of the new external non-executive deputy governor will begin on March 13; he will work for the central bank on a part-time basis. “His in-depth knowledge of monetary economics and his great interest in public policy will certainly help the Bank to meet the policy challenges that will arise,” commented Tiff Macklem, Governor of the Bank of Canada, in the press release announcing the appointment of Mr. Vincent.

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