Bank of Canada survey shows business, consumer sentiment remains low

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The Bank of Canada says business and consumer sentiment remained low during the third quarter of this year, citing high interest rates and higher costs as the main reasons.

“Firms noted that high interest rates have continued to weigh on sales over the past year, particularly for firms linked to discretionary consumer spending,” the Business Outlook Survey reads.

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Companies also cited other concerns that are weighing on business conditions, including domestic and global uncertainty, and taxes and regulations. However, the share of firms who expect better sales over the next year has improved slightly from a year ago.

Consumers are less pessimistic about their financial situation than the previous quarter, and 44 per cent have noticed interest rates falling. Despite these improvements in sentiment, consumers still expect to spend more money on essential purchases in the year ahead and less on discretionary spending.

“You don’t want to make as many of those big purchases just because you don’t know how secure your job is,” said one respondent in the Canadian Survey of Consumer Expectations. “Anything could really change. Just saving more, less spending.”

Around half of consumers (49 per cent) are still expecting a recession in the coming year, a sentiment that is largely unchanged from the previous quarter (51 per cent). Around 16 per cent of businesses expect a recession in the coming year, a small improvement from the 20 per cent of firms that were expecting a recession in the second quarter.

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Business investment intentions over the coming year remain below their historic average, with companies focused primarily on replacing or repairing equipment, rather than on expanding production or improving efficiencies.

“Some firms said they are holding off on more significant investments until they see signs of stronger demand, reduced uncertainty or lower financing costs,” according to the survey.

When it comes to inflation expectations, nearly two thirds of business firms think inflation will remain within the two to three per cent range over the next two years. Consumers expect inflation to hover around three per cent during the same period.

More businesses think interest rates will decline further over the coming year compared to the last quarter, while consumers do not expect further rate cuts.

• Email: jgowling@postmedia.com

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