Highlights:
- The survey was relatively upbeat with business investment intentions holding up well despite lower oil prices.
- There was little change in measures of capacity pressures — which remained elevated — although there was some easing in concerns about those pressures intensifying going forward.
Our Take:
Considering financial market volatility and exceptionally wide discounts on Canadian oil prices over the survey period (early to late November), Canadian businesses remained relatively upbeat in Q4. Expected future sales growth over the next 12 months is about what it was over the last 12. That’s not so bad given the strength in sales over the last year, though, particularly with further evidence that businesses are still bumping up against capacity constraints. Business investment intentions still look solid, supported reportedly by plans to both “increase efficiencies” and expand output. Responses were understandably less positive in the Prairies given lower oil prices although even there investment intentions were reportedly “held up by long-term investment strategies” and plans to “implement new technologies.” Plans to increase employment remained widespread.
Capacity pressures remained elevated — especially outside of the Prairies. The share of businesses saying they would have difficulty meeting an unexpected increase in demand held steady at 56%. Labour shortages remained widespread, although were reportedly slightly less intense.
Firms also reportedly “no longer anticipate capacity pressures to intensify,” a sentiment that could have deepened further since the survey was conducted given financial market volatility and still-low oil prices. Nonetheless, the Q4 BOS data serves as a reminder that the economy still looks to be running at or around capacity at a time when interest rates are still historically low. Growth momentum has slowed, and a number of transitory disruptions should weigh on broader economic data over the next couple of quarters, but at this point it still looks like there is room for interest rates to move gradually higher once again in 2019— although still not likely at the next BoC policy decision in January.
