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Results of the Spring 2020 Survey | Vol. 17.1 | April 6, 2020

Results from the spring Business Outlook Survey suggest that business sentiment had softened in most regions even before concerns around COVID‑19 intensified in Canada. Confidence deteriorated the most among firms in energy-producing regions.


  • Interviews for the Business Outlook Survey (BOS) were conducted before concerns around COVID‑19 had significantly intensified in Canada. More recent consultations conducted after the BOS indicate that sales have collapsed for businesses in some consumer-oriented industries (Box 1) and energy firms have experienced a dramatic increase in economic and financial stress (Box 2).
  • Based on responses to the BOS, the sales outlook for businesses tied to the energy sector had weakened significantly because of falling oil prices. For other firms, notably in Quebec, domestic sales prospects were positive but had moderated.
  • Investment and employment intentions were modest. Businesses in the Prairies planned to cut back on their capital spending and workforces.
  • Pressures on production capacity remained elevated in Central Canada but eased somewhat overall. Labour shortages intensified from a year ago, prominently in Quebec.
  • While businesses anticipated input prices to grow slightly faster, they expected to increase their output prices at a marginally slower pace due to competitive pressures. Inflation expectations continued to edge up toward the 2 percent target midpoint of the Bank of Canada’s inflation-control range.
  • At the time of the survey, credit conditions had eased slightly over the previous three months.
  • The BOS indicator fell below zero, signalling that business sentiment had softened even before the COVID‑19 shock intensified. The results for several survey questions were below or near their historical average, reflecting increased weakness in energy-producing regions.

Business activity

The indicator on past sales growth declined and was firmly negative (Chart 1), reflecting slower sales growth across most regions. With this backdrop, businesses generally anticipated a faster pace of sales growth over the next 12 months, as indicated by a positive balance of opinion (Chart 2, blue bars). This partly reflected expectations that sales would no longer fall or would recover slightly. Indeed, firms generally cited a modest improvement in indicators of future sales (e.g., order books and sales inquiries) (Chart 2, red line), pointing to weak sales growth ahead. Importantly, with oil prices starting to fall, the sales outlook for businesses tied to the energy sector had weakened significantly. For other firms, their domestic sales prospects were positive but had softened due to increased competition or had moderated after a period of exceptional growth, notably in Quebec.

Chart 1: Past sales growth

* Percentage of firms reporting faster growth minus the percentage reporting slower growthLast observation:

Chart 2: Future sales growth

* Percentage of firms expecting faster growth minus the percentage expecting slower growth
† Percentage of firms reporting that indicators have improved minus the percentage reporting that indicators have deterioratedLast observation:

Reports of improved indicators of future sales to foreign customers, often supported by US demand, were somewhat widespread and pointed to modest future growth in export sales. While many firms cited uncertainty around the impact of COVID‑19 on US growth, respondents generally had positive US growth expectations at the time of the survey. Furthermore, they anticipated their sales to benefit from US growth and from recent developments in global trade policy, particularly the ratification of the Canada-United States-Mexico Agreement and the US–China Phase One trade deal.

Amid softening domestic demand, businesses planned modest increases in capital spending on machinery and equipment in the next 12 months (Chart 3). Indeed, firms, particularly in the Prairies, were holding back on their capital expenditure plans because of weaker domestic sales expectations and increased uncertainty.

Chart 3: Investment intentions

* Percentage of firms expecting higher investment minus the percentage expecting lower investmentLast observation:

The balance of opinion on employment intentions has continued to trend downward since mid-2018 to below its historical average (Chart 4). Hiring plans were muted because firms in the Prairies signalled intentions to reduce or maintain the size of their workforces in an environment of falling oil prices. Other businesses, however, reported intentions to add staff (often for positions related to information technology) to accommodate expected increases in demand.

Chart 4: Employment intentions

* Percentage of firms expecting higher levels of employment minus the percentage expecting lower levels Last observation:

Pressures on production capacity

Following a recent upward trend, the number of businesses reporting they would have difficulty meeting an unexpected increase in demand eased to just above its historical average (Chart 5). Pressures on firms’ capacity continued to be elevated among firms in Central Canada and British Columbia.

Chart 5: Capacity pressures

  Last observation:

The balance of opinion on labour shortage intensity remained positive (Chart 6, red line), as firms, most prominently in Quebec, saw more intense shortages than a year ago. Few businesses in the energy-producing regions reported labour shortages, signalling material labour market slack there. Overall, the number of firms reporting labour shortages restricting their ability to meet demand remained near its historical average (Chart 6, blue bars).

Chart 6: Labour shortages

* Percentage of firms reporting more intense labour shortages minus the percentage reporting less intense shortagesLast observation:

Prices and inflation

Businesses expected non-labour input prices to grow at a slightly faster pace over the next 12 months (Chart 7). Expectations of accelerating cost growth related to various non-commodity inputs were partly offset by lower pressures due to falling energy prices and improved bargaining power with their suppliers.

Chart 7: Input prices

* Percentage of firms expecting greater price increases minus the percentage expecting lesser price increases Last observation:

The balance of opinion on output price growth continued to trend downward (Chart 8), suggesting marginally slower price growth over the next 12 months. Several firms mentioned that competitive pressures and softer demand conditions were dampening the growth of their selling prices.

Chart 8: Output prices

* Percentage of firms expecting greater price increases minus the percentage expecting lesser price increasesLast observation:

Firms’ inflation expectations continued to trend upward and became more balanced above and below the 2 percent target midpoint of the Bank’s inflation-control range (Chart 9). Weaker expectations were concentrated in the Prairies.

Chart 9: Inflation expectations

Last observation:

Credit conditions

At the time of the survey, the indicator on credit conditions pointed to a slight easing over the previous three months (Chart 10). Several firms reported obtaining lower borrowing rates, often indicating this was because of greater competition among banks. Conversely, businesses that reported less favourable credit conditions, including a few firms tied to the energy sector, generally noted increased non-price conditions.

Chart 10: Credit conditions

* Percentage of firms reporting tightened terms and conditions minus the percentage reporting eased. For this question, the balance of opinion excludes firms that responded “not applicable.” Last observation:

Business Outlook Survey indicator

The BOS indicator fell below zero, signalling that business sentiment had softened even before the concerns around COVID‑19 intensified in Canada (Chart 11). Results for several BOS questions fell to levels slightly below or near their historical average, often reflecting widespread weakness in the energy-producing regions and an easing in activity, sometimes from high levels, in Quebec and British Columbia.

Chart 11: BOS indicator

Last observation:

Box 1: Consumer-oriented firms reported a collapse in sales due to COVID‑19

To better understand the quickly evolving economic impacts of COVID‑19, the Bank conducted phone consultations with a small, targeted sample of Canadian firms and industry associations between March 13 and 17.1 The impact of the shock on firms was still escalating, with some firms seeing very recent sharp declines in demand and others only expecting them.

Businesses in the accommodation, food services and recreation industries reported that their sales, orders and reservations had collapsed. Several firms had already closed or expected to soon close their operations due to declining cash flow. Non-food retailers reported a dramatic drop in foot traffic and were scaling down their operations. Businesses in these industries were drastically laying off staff or reducing staff hours in line with operations. However, some were also pivoting to new or less-developed business lines, such as food delivery and online sales, as a way to mitigate the negative effect on revenue.

Some manufacturers anticipated reduced demand from challenged customers. At the time of the consultations, they expected to temporarily shut down their operations and reduce their workforces. While some businesses in other industries (such as those tied to housing construction) had not yet been affected, most respondents indicated significantly more uncertainty about the demand for their products and services.

In contrast, grocery retailers and related transportation services noted that their sales had reached unprecedented levels. They expected some of the surge to last as people continue to eat at home (instead of dining out) and purchase more cleaning products.

Beyond weak demand, several businesses also said that the availability of some inputs, often from China and Italy, had been disrupted. Some firms mentioned that their access to Chinese-sourced inputs was gradually resuming. Retailers, particularly grocery stores, noted that they had not had significant issues with their supply chains.

Finally, when asked about their upcoming capital expenditures, firms generally reported taking a wait-and-see approach. Almost all firms in hard-hit tourism-related and food services were cutting back on renovations and purchases of machinery and equipment or were placing investment plans on hold to preserve cash. Some firms in other sectors had not yet changed their investment plans since they had large investment projects already underway or had not intended to make new investments over the coming year.

Box 2: Energy firms reported a dramatic increase in economic and financial stress

To help understand the impact of the recent collapse in oil prices on the energy sector, Bank staff conducted a short survey by phone and online of a small sample of Canadian oil and gas firms between March 12 and 18.2 Many of these businesses reported that low oil prices were leading to financing and liquidity issues and were forcing them to reduce costs and operations. The majority of firms viewed the current oil price shock as worse than the episodes of significant oil price declines in 2008 or 2015. This is because accessing financing has been more difficult and many businesses had been anticipating a bottoming-out in the sector rather than a negative shock.

At the time of the consultations, the financial health across the sector had deteriorated significantly. Most businesses consulted had already experienced a tightening of financing conditions: equity prices had plunged, credit spreads had widened and risk appetite had disappeared. While some firms reported being able to withstand a period of low oil prices (e.g., they have strong hedging positions, a healthy balance sheet or low-cost operations), many had concerns about their ability to access financing. For their part, natural gas producers were partially insulated from the shock because natural gas prices were holding up.

In this context, most firms reported major cuts to their capital budgets. On average, companies had revised their 2020 capital spending plans down 30 percent compared with 2019. In addition, significant staffing reductions were imminent, especially among oil-field service companies that employ a large share of the sector’s workforce. In contrast, at the time of the survey, most producers expected few layoffs because they were already very lean and it would be difficult to find additional efficiencies in the near term. Still, some producers anticipated having to cut their workforces if low oil prices persisted and, correspondingly, their production was reduced for an extended period of time.

Overall, the sector’s production response was expected to be somewhat delayed. Many conventional oil producers anticipated production to fall off quickly as capital expenditures decline. However, some larger producers were expecting to bring previously planned projects online, partially offsetting those declines in the near term.

Most respondents expected prices for West Texas Intermediate to remain depressed for the remainder of 2020, averaging in the range of US$30–$35 per barrel. Businesses generally anticipated a modest price recovery in 2021 to US$40–$45 per barrel. Firms with lower price expectations referred to persistent uncertainty around COVID‑19 and the ongoing crude-oil price war3 as key factors exerting significant and lasting downward pressure.

  1. 1. The sample was composed of 52 firms and 11 industry organizations. It was not representative of Canadian gross domestic product by sector, region or firm size.[]
  2. 2. The sample included 27 oil and gas firms. Between March 12 and 18, 2020, prices for West Texas Intermediate averaged US$27.85 per barrel.[]
  3. 3. The price war follows a breakdown in the alliance between Russia and the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, when deciding how to respond to a drop in global demand due to COVID‑19. After the two countries failed to reach an agreement on output reductions, Saudi Arabia responded by cutting prices and raising its oil production.[]

The Business Outlook Survey summarizes interviews conducted by the Bank’s regional offices with the senior management of about 100 firms selected in accordance with the composition of the gross domestic product of Canada’s business sector. This survey was conducted from February 11 to March 6, 2020. The balance of opinion can vary between +100 and -100. Percentages may not add to 100 because of rounding. Additional information on the survey and its content is available on the Bank of Canada’s website. The survey results summarize opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.

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