- Future sales, investment, and employment plans solid
- Widening regional rift between weaker Prairies and stronger elsewhere.
Canadian business sentiment somewhat unexpectedly improved in the Bank of Canada’s autumn (Q3) Business Outlook Survey. Businesses did cite, as expected, concerns about the US industrial sector amid escalating US-China trade tensions. Indeed, some firms now reportedly expect a “small US recession” over the next year. But foreign demand appears to be holding up, to date. Investment intentions actually improved in the Q3 edition (we fully expected them to fall) even after accounting for softer intentions among exporters. The improvement was probably driven in part by rising capacity pressures. Half of businesses reported they would have trouble meeting an unexpected increase in demand. Still, future sales and hiring expectations also both remained solidly positive despite elevated uncertainty about the economic outlook.
The soft spot remains in the Canadian prairies where sentiment in the energy sector remains persistently pessimistic. And while the impact of trade uncertainty on the rest of the country could potentially ease if the US and China decide to make nice, some challenges in the energy sector (eg. pipeline shortages) cannot be so quickly solved.
There are still clearly legitimate risks to the go-forward outlook for the Canadian economy. But, for now, these survey results – although from a limited sample of about 100 firms – will probably only reinforce the Bank of Canada’s view that rate cuts are not immediately needed.
