Economy expected to stay sluggish
BUSINESSES, CONSUMERS DO NOT FORESEE PACE PICKING UP IN THE NEXT YEAR
Businesses and consumers continue to expect slow economic growth in the next year, according to surveys released by the Bank of Canada on Monday.
Businesses reported below-average sales growth over the last 12 months and on balance, do not expect the pace to pick up going forward. Firms that rely on discretionary spending from consumers have seen the biggest decline in sales in the past quarter and one-third of those firms expect declines in the next year, with many consumers deciding to purchase less expensive products or seeking discounts.
That being said, the percentage of firms that are preparing for a recession in the next year also declined this quarter, with 20 per cent of firms now expecting a significant economic downturn, compared to just over 27 per cent last quarter.
On the consumer side, 51 per cent of those surveyed expect Canada’s economy to decline over the next 12 months, compared to 52 per cent last quarter. This uncertainty has prompted many consumers to scale back their spending.
Both consumers and businesses have shifted their focus this quarter to government spending and regulatory tax policies respectively. The number of businesses citing taxes and regulations as their top concern jumped this quarter, with firms singling out red tape and excess regulations for slowing their plans, and taxes — predominantly the carbon tax — for hiking their costs. Uncertainty around the economy and cost pressures also remained top concerns.
Business investment, meanwhile, remained at historic lows, with many firms seeing the low-demand environment weighing on their return on investment. However, there was a slight increase in the share of firms who will make investments in machines and equipment over the next 12 months.
Consumers also pointed to government policy as a top reason for economic uncertainty, along with global tensions and interest rates.
The inflation outlook among consumers has remained elevated, with many expecting price growth to remain above four per cent in the next year. But firms’ expectations of inflation fell slightly in June, landing in the Bank of Canada target range of two to three per cent. Most firms expect the Bank of Canada’s policy interest rate to decline by 50 to 100 basis points in the next 12 months, but still expect the high-interest environment to weigh on their sales outlooks.
Both the Business Outlook Survey and the Canadian Survey of Consumer Expectations suggest that the labour market has shifted in favour of businesses over consumers, with 50 per cent of consumers now saying it has become harder to find a job in their line of work, up from 38 per cent a year ago. Newcomers in particular are worried about losing their jobs.
Businesses however are now seeing labour shortages decline significantly. Firms are also pulling back on hiring, with 40 per cent not planning to add any workers.