Canada’s cooling economy and global trade tensions are conspiring to have a negative impact on business confidence, according to a new Bank of Canada survey.
The central bank’s first-quarter survey of executives, which took place in February and March, showed soft expectations for sales along with a sharp decline in the number of companies reporting labor shortages. The Bank of Canada’s composite gauge of sentiment turned negative and dropped to its lowest level since 2016.
"The main headwinds are a more uncertain outlook in the Western Canadian energy sector, continued weakness in housing-related activity in some regions, and tangible impacts from global trade tensions," the Bank of Canada said in the report in which it described the deterioration in sentiment as a "softening."
The Canadian dollar fell after the report was released Monday, declining as much as 0.4% to trade at $1.3371 against the U.S. dollar. The yield on two-year government bonds fell three basis points to 1.61%.
The weakening confidence reflects how global trade wars, a slump in oil prices and a sluggish housing market are beginning to ripple through the Canadian economy. Bank of Canada Governor Stephen Poloz puts significant weight on the survey, which he considers an important supplement to harder economic data. The survey provides insights into everything from investment intentions to inflation expectations, and the latest report was almost negative in every category.
More businesses reported their sales growth decelerated over the past 12 months, while expectations for future sales remained depressed. The share of companies reporting at least some difficulty in meeting increased demand fell to 31%, the lowest level since 2015. Inflation expectations showed a marked softening. About two-thirds of all executives surveyed expect inflation won’t surpass 2% over the next two years.
