Tuesday, July 5

Business Sentiment Rises to Record in Canada on Vaccine Rollout

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(Bloomberg) — Business sentiment has risen to record levels as an accelerating vaccine rollout bolsters confidence in the recovery, according to the Bank of Canada.

The Ottawa-based central bank’s latest quarterly survey of executives shows businesses continue to report improving conditions, with positive sentiment more widespread than it was three months ago. Senior managers reported strong sales outlooks, elevated investment intentions, record hiring plans, capacity constraints at all -time highs and rising expectations for inflation and wages.


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The central bank also highlighted that there’s evidence of a broadening in the recovery into sectors that have struggled up to now, with the vast majority of firms seeing pandemic-related uncertainty behind them. Not one firm surveyed reported signs of a deterioration in expected demand.

The bank’s composite gauge of business sentiment rose to 4.2 in the second quarter, the highest score in data going back to 2003. That’s up from 3 in the first quarter and as low as negative 6.9 during the height of the pandemic last year.

“Firms tied to high-contact services still face challenges but are becoming more confident that sales will pick up as vaccination rates rise,” the central bank said in the summary of its findings. “This suggests an important broadening in the recovery ahead.”


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The results will only fuel expectations the Bank of Canada will continue paring back its aggressive monetary policy stance at its July 14 policy decision.

The central bank is among the first from advanced economies to shift to a less expansionary policy, having already cut its purchases of Canadian government bonds to C$3 billion ($2.4 billion) weekly from a peak of C$5 billion last year. Analysts anticipate that will come down to C$2 billion per week next week, before eventually falling to a weekly pace of about C$1 billion by early next year.

A separate survey of consumers also found spending expectations near a record, reflecting Canadians desire to unleash pent-up demand once restrictions ease. Consumers see inflation at 3.1% over the next year, a record high.


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The interviews in the Bank of Canada business outlook survey were conducted from May 11 to 28, while parts of Canada were still in the middle of a third wave of lockdowns. At the same time, Canada’s vaccine roll out was picking up speed after a slow start.

Other Highlights

73% of firms said indicators of future sales have improved from year ago. That’s a record. Not one first reported a deterioration 61% of first say they would have at least some difficulty meeting an unexpected increase in demand. That’s also a record, linked to difficulty in finding skilled labor and to supply-chain issues Labor shortages remain below historical average but there are signs they are intensifyingPlans to invest in equipment were down from earlier this year, but remain at historically elevated levels, with 52% planning more spendingHiring expectations are at records, with 68% of firms planning higher employment levels Wage growth expectations are at near record.Just 8% of firms surveyed expect inflation below the Bank of Canada’s 2% target in the next two years. The average since 2001 is 47%Some 86% of firms surveyed expect inflation above the Bank of Canada’s 2% target over the next two years, the highest since 2005. More than one-third see inflation above 3%Most drivers of inflationary pressures are viewed as temporary: BOCDespite the strong improvement, Bank of Canada said substantial excess capacity remains among firms hit hard by the pandemic

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