Bank of Canada outlook surveys show recession fears rising

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The number of Canadian firms now operating on the assumption that a recession will occur over the next year has risen, according to surveys released by the Bank of Canada on Monday.

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Around 32 per cent of respondents in the Business Outlook Survey (BOS) believe an economic downturn will occur in the coming year, up from 15 per cent over the previous two quarters. The growing pessimism is also reflected in a survey of Canadian consumers, where 67 per cent are expecting a recession in the coming year, up from 47 per cent in the last quarter.

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Data from the BOS is based on interviews conducted between Feb. 6 and Feb. 26, which is before U.S. President Donald Trump announced 25 per cent tariffs on Canadian steel and aluminum in mid-March and 25 per cent tariffs on autos on March 26.

Businesses surveyed, particularly those in the export sector, outlined three main concerns including the ongoing trade conflict with the United States, the political situations in both Canada and the U.S. and the risks to consumer spending. Around 40 per cent of firms expect lower sales growth if tariffs are implemented.

Trade uncertainty has also translated into a pullback in investment with 22 per cent of firms now saying the uncertainty has put a hold on their plans. Hiring has also been paused due to the uncertainty, with just 32 per cent of firms planning to hire more workers over the next year. The last time the portion of firms that planned to hire was this low was the fourth quarter of 2015.

Tariffs have also put upward pressure on price expectations for Canadian businesses. The BOS highlights a number of other reasons why price expectations have risen, including the depreciation of the Canadian dollar, the pivot away from U.S. suppliers, tariffs from China and suppliers proactively raising prices in anticipation of future tariffs.

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Nearly 45 per cent of firms expect to partially or fully pass through their costs to consumers, while 31 per cent are not expecting their input prices to be affected by tariffs. Around 17 per cent of businesses do not plan to pass on their costs, while four per cent remain unsure about the extent of the pass-through.

The survey also asked about the inflation outlook, which has businesses expecting the consumer price index to be 3.6 per cent in the year ahead.

According to the bank’s Consumer Expectations Survey, trade uncertainty is raising concerns over job security and financial health. This translates into a larger portion of consumers holding back on purchase plans this quarter.

“I’m definitely spending less and saving more because the future is so uncertain,” said one respondent. “I like to be ahead of what might happen in the economy for example, my job security might get worse.”

• Email: jgowling@postmedia.com

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