The Bank of Canada’s business outlook indicator has fallen to its lowest level since the spring of
2020 when the COVID-19 pandemic began.
The central bank’s gauge of business sentiment declined to 1.69 in this year’s third quarter,
down from 4.87 in the second quarter. That represents the biggest drop in confidence among
Canadian businesses since the second quarter of 2020.
Key to the latest decline is that more than three quarters (75%) of businesses expect inflation to
remain above 3%, the top end of the Bank of Canada’s target range, for an extended period.
The latest data from the Bank of Canada indicates a rapid erosion of business confidence due
to a slowing economy, persistently high inflation, and rising interest rates that make borrowing
more expensive.
The Bank of Canada’s latest survey found that most businesses in Canada think a recession is
likely within the next 12 months due to large increases in interest rates and high prices that
reduce consumer spending.
The average expected wage increase among businesses has declined, with nearly half not
seeing abnormally high wage growth beyond the next 12 months.
Most businesses also said that rate hikes aren’t yet holding back their investment plans. But
fewer businesses are planning to hire over the next year.
The Bank of Canada’s next interest rate decision is scheduled for October 26, where most
economists expect the central bank to raise rates by at least 50 basis points, according to
Refinitiv data.
The Bank of Canada’s trendsetting overnight interest rate is currently at 3.25%, its highest level
in 14 years.
