Bank of Canada’s Business Outlook Survey Paints a Bleak Economic Picture

One of the most comprehensive economic reports for the Canadian economy is the quarterly Business Outlook Survey. Put together by the Bank of Canada, it offers a complete overview of the economy, the evolution in the past three months, and also has predictive qualities regarding future economic predictions.

The report is based on information provided by over one hundred businesses from various Canadian economic sectors. The information then is compiled into a report that covers domestic and foreign demand, input and output prices, labor shortages, and so on.

Key Takeaways from the Summer 2020 BOC’s Business Outlook Survey

The main conclusion of the report is that business activity declined dramatically in the last three months. The Canadian economy remains vulnerable to the coronavirus pandemic and reflects the challenges the policymakers face in addressing weak economic performance.

During the surveyed period, almost all indicators declined to levels well below their historical average. Moreover, in some cases, the decline in business activity was so steep that hiring plans were simply muted.

Business confidence fell across all Canadian regions. As a result, a decline in sales followed. What is interesting in this report is that the decline in sales exceeds the three months horizon of the survey, as sales growth has slowed considerably in the past twelve months.

As for future sales, asked if the future sales volume of the firm is expected to increase in the next twelve months, the widespread belief was that weak sales expectations are the norm.

Weak sales expectations have a strong impact on investment spending. As a result, most businesses intend to significantly cut their investment spending in the period ahead.

As some firms intend to refill their positions once the economy reopens gradually, labor shortage indicators suggest an ongoing labor market slack.

Inflation expectations declined dramatically. The fall in the price of oil over the period  did not help. One the one hand, businesses expect slower growth in output prices, and on the other hand, price declines drive slower growth in input prices.

All in all the summary has been a bleak economic report about the state of the Canadian economy during the COVID-19 crisis. However, it is not a surprise – the only surprise is to see the extent of economic damage created by the pandemic.

Moving forward, the Ivey PMI this week refers to the economic activity in a period closer to present times. Therefore, even the slightest improvement may be seen as an encouraging sign for the economic activity to pick up for the rest of the year.

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