Marc Dufresne

Amid rising interest rates and slowing demand, Canadian business sentiment has fallen the most since the start of the Covid-19 pandemic, the Bank of Canada survey showed on Monday.

Specifically, the BoC’s third-quarter trade outlook gauge fell to 1.69 from 4.87 in the previous quarter and 5.88 at the peak of Q4 2021. Although the latest figure remained in positive territory, it is the worst deterioration since Q2 2020, when the indicator is fell to -6.32 from -0.81 in Q1 2020.

“Many companies expect sales growth to slow as interest rates rise and demand growth approaches pre-pandemic levels,” the report said.

Businesses’ short-term inflation expectations eased over the quarter but remain above the central bank’s 2% target. More than 75% of businesses expect inflation to stay above 3%.

The majority of respondents expect a recession to occur within the next year as demand is hampered by rising rates and prices. The BoC has already raised its key rate by 300 basis points since the start of its tightening cycle in March. Its next rally is expected to take place on October 26, where policymakers are expected to raise the benchmark rate by another 50 basis points.

“While many companies anticipate a recession, those unrelated to real estate activity and other household consumption do not expect it to have a significant impact on demand for their products and services” , BoC policymakers explained.

Related ETFs: iShares MSCI Canada (NYSEARCA: EEC), Franklin FTSE Canada (NYSEARCA: FLCA) and iShares Currency Hedged MSCI Canada (NYSEARCA: HEWC).

Previously (September 19), Loonie called a short sale on TD as Canada’s debt problem causes the BoC to fall behind the Fed.


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