Canadian companies expect a marked decline in sales
How are businesses and consumers adapting to changing economic conditions?
Canadian companies are forecasting a slowdown in sales amid rising interest rates that are curbing household spending. Businesses also expect inflation to fall, according to the central bank's fourth-quarter survey.
More than a third of businesses (38%) foresee an economic downturn in 2024 — an increase from the previous survey. 61% of consumers also see recession risks, up from 55% previously. There is already a decline in orders compared to last year. Companies expect lower prices for both raw materials and finished products.
That said, business owners in Canada recognize that wage increases are likely to be higher than usual due to cost-of-living adjustments. December 2023 has already seen a sharp increase in hourly wages, the largest in nearly three years.
Interest rate now
The Bank of Canada raised the rate to a 22-year high of 5% last year, and it has remained unchanged since then. Inflation in November was 3.1%, below the 2022 peak but still above the bank's 2% target.
The bank's next meeting, scheduled for Jan. 24, is likely to bring no change. Analysts predict a rate cut in the first half of 2024.
Predictions for the future
39% of businesses reported a drop in sales last year, attributing this to the slowdown in economic growth and the impact of inflation and interest rates.
54% of businesses expect inflation to exceed 3% in the next two years, but there are also those who believe it will fall below that level. The Bank of Canada, for its part, initially predicted that inflation would fall to 2% by the end of 2025, but the bank's governor, Tiff Macklem, expressed hope that this would happen by the end of this year.
A survey among consumers showed that they do not expect further rate hikes in the coming year and have lowered expectations of future inflation. In addition, tired Canadians no longer expect stabilization of prices for key commodities: food and gasoline.
