Results from the fourth-quarter 2022 Business Outlook Survey and the Business Leaders’ Pulse surveys from October 2022 through January 2023 show that business sentiment has continued to weaken. As a result of rising interest rates, firms’ sales expectations and investment plans are softening. Capacity pressures have moderated from elevated levels. In this context, firms expect a slower pace of price increases.
Rising interest rates are dampening firms’ sales expectations and plans to invest (Box 1). Firms also link their weaker outlook on demand to high inflation eroding consumers’ spending power and to the possibility of a recession. More businesses than usual expect their sales to decline.
Amid softer demand and recent improvements in supply chain issues, pressures on businesses’ production capacity have eased from high levels.
Firms continue to expect inflation to be above the Bank of Canada’s inflation target in the short term. Businesses anticipate slower growth in their input and output prices, mainly due to falling commodity prices and weakening demand. Many firms are gradually returning to price-setting practices they used before the pandemic. In particular, they are reducing the size and frequency of their price changes relative to the past year.
To read the full report visit https://www.bankofcanada.ca/2023/01/business-outlook-survey-fourth-quarter-of-2022/