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Business sentiment jumps to third-highest ever with many companies believing pandemic harm behind them

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Yet almost 20% of firms in Bank of Canada survey do not expect sales to return to pre-pandemic levels in the next 12 months

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Business sentiment rose to near record levels at the start of 2021 on an improving outlook for both domestic and foreign demand, according to the Bank of Canada.

The results its latest quarterly survey of executives show business conditions continuing to improve, with many firms no longer worried about pandemic uncertainty. Managers reported stronger sales outlooks, investment intentions and accelerating inflation expectations, though they indicated capacity constraints were slightly weaker at about historical averages.

The central bank also highlighted, as it has been doing throughout the recovery, the unevenness of the rebound.

The Bank of Canada’s composite gauge of sentiment rose to 2.9 in the first quarter, the highest since 2018 and the third highest score in data going back to 2003. That’s up from 1.3 in the fourth quarter and a decade-low of -6.9 at the height of the pandemic last year. The indicator hit a record of 3.0 in the second quarter of 2018.

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Bank of Canada Business Outlook Survey
Bank of Canada Business Outlook Survey Photo by Bank of Canada

“Firms reported less uncertainty related to the COVID‑19 pandemic and strengthening demand from weak levels,” the central bank said in its summary of the findings. “Still, the recovery remains uneven, with firms tied to high-contact services facing ongoing challenges.”

The results of the survey will only fuel expectations the Bank of Canada will start tightening its aggressive monetary policy stance as early as its April 21 policy decision, when it could begin slowing the pace of its government bond purchases. Separately, the central bank issued its quarterly survey of consumers that also found spending expectations at a record.

  1. Federal Reserve Chair Jerome Powell was on CBS's

    Fed’s Jerome Powell says economy at ‘inflection point’ but COVID still big risk to growth and jobs

  2. Canada's economy added 303,100 jobs in March, Statistics Canada reported Friday in Ottawa.

    Canada’s recovery kicks into higher gear, gaining thousands more jobs than expected

  3. Canadians have tucked away $180 billion in precautionary savings during the pandemic, and that extra spending power is expected to boost the economy when restrictions are lifted.

    Safeguards needed to protect households from rising interest rates if inflation kicks in, CIBC’s Dodig says

The interviews in the Bank of Canada business outlook survey were conducted from mid-February to early March, before new economy-wide restrictions were imposed amid a third wave of COVID-19 cases. The data, though, do show signs businesses are adapting to containment measures, including a greater capacity for online sales, according to the central bank.

Other Highlights

  • Nearly two-thirds of firms indicate sales have reached or exceeded pre-pandemic levels
  • Still, some businesses in high-contact sectors are hurting. One‑fifth of managers said they don’t expect sales to return to pre-pandemic levels over the next 12 months
  • 60 per cent of firms reported improving indicators of future sales, up from 41 per cent at the end of last year
  • Investment intentions are at record highs with 59 per cent of managers saying they plan higher spending on machinery and equipment over the next 12 months.
  • Only 6 per cent of companies see lower employment levels over the next 12 months. 51 per cent expect to increase staff, slightly down from 54 per cent at end of last year
  • More than half of firms see inflation at above 2 per cent, the first time it’s past the 50 per cent threshold since 2018
  • The balance of opinion for both input and output price inflation is highest on record

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