Bank of Canada Q3 business outlook survey

Businesses optimistic about future sales growth, but also report labour shortages, higher expectation of inflation

Photo by Blake Wisz on Unsplash

ACCORDING TO THE Bank of Canada’s third-quarter business outlook survey, Canadian business confidence has risen sharply, though inflation expectations are elevated and labour shortages are getting worse.  

An easing of pandemic restrictions has driven a sharp improvement in business confidence, with executives in the quarterly survey citing a strong outlook for domestic and foreign sales. A broad gauge of business sentiment reached its highest level in records going back to 2003.

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Still, businesses say a lack of available workers and supply-chain bottlenecks are hurting their ability to meet demand. That’s driving inflation expectations higher: 45 per cent of firms anticipate inflation will be above 3 per cent over the next two years.

“Most firms continue to anticipate healthy growth in both domestic and foreign demand, although for those offering hard-to-distance services this means recovering from low levels,” the bank said in the summary of its findings.

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The Q3 report adds to evidence that businesses are facing challenges meeting robust demand in the aftermath of pandemic lockdowns. More than half of firms said capital expenditures over the next two to three years will be higher than before the pandemic.

A separate survey of consumer expectations also showed Canadians also expect inflation above 3 per cent over the next couple of years. Both firms and consumers largely expect the high inflation levels to be transitory, as shortages ease.

Other highlights in the reports include:

  • Businesses expect the supply chain issues to last until the second half of 2022
  • Companies say they are likely to raise wages to address labor shortages
  • Capacity pressures are widespread with a large portion of firms saying they would have difficulty meeting an unexpected spike in demand
  • Canadians who accumulated savings during the pandemic expect to spend about one-third of the funds by end of 2022
  • Consumer have more confidence in the labor market, with an increase in the likelihood of leaving a job voluntarily versus before the pandemic. 

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Firms that took part in the central bank’s quarterly business outlook survey say they’re going to pass on the higher payroll costs to customers.

Companies also say they’re going to pass on higher shipping costs from supply-chain disruptions that they don’t see abating until the second half of 2022. Bank of Canada Q3 business outlook survey businesses Economy

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