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Results of the Summer 2020 Survey | Vol. 17.2 | July 6, 2020

Results from the summer Business Outlook Survey suggest that business sentiment is strongly negative in all regions and sectors due to impacts from the COVID‑19 pandemic and the drop in oil prices. Firms reported that weak demand is reducing both capacity pressures and expectations for price growth.


  • Interviews for the Business Outlook Survey were conducted from mid-May to early June, as government-mandated restrictions were beginning to ease.
  • The overall Business Outlook Survey indicator fell sharply, with most constituent indicators declining to levels well below their historical averages.
  • As businesses expect weakness in domestic and foreign demand to continue due to impacts from COVID‑19 and low oil prices, forward-looking sales indicators have collapsed. Many businesses referred to elevated uncertainty. Still, roughly half of firms anticipate that their sales will recover to pre-pandemic levels within the next year (Box 1).
  • Businesses in most regions and sectors intend to significantly cut their investment spending. Hiring plans are muted, although a quarter of firms plan to refill some positions after recent layoffs.
  • Reports of capacity pressures and labour shortages have fallen significantly. This suggests a substantial widening in economic slack.
  • Expectations for input and output price growth as well as for overall inflation are all down considerably because of weak demand related to the pandemic. But the majority of firms continue to expect inflation to be within the Bank’s inflation-control target range of 1 to 3 percent.
  • Credit conditions have tightened significantly, but government measures are a helpful offset.

Business Outlook Survey indicator

Widespread negative business sentiment caused by the effects of the COVID‑19 pandemic is reflected in a sharp fall in the Business Outlook Survey indicator, which dropped close to the trough experienced during the 2007–09 global financial crisis (Chart 1). Since the previous survey, conducted before concerns around COVID‑19 had intensified but as oil prices had already started to fall, business confidence across all regions has generally declined. Indicators of employment intentions, input price growth and credit conditions did not deteriorate as much as they did during the 2007–09 crisis. This is due partly to the government support offered to mitigate the impacts of the pandemic. This also reflects that many firms expect a fairly quick rebound in operations after a temporary decline in sales (Box 1), unlike the 2007–09 crisis when businesses anticipated persistent weakness in demand.

Chart 1: BOS indicator

Last observation:

Business activity

Nearly half of all businesses reported an outright decline of their sales in the past 12 months because of the impacts from COVID‑19, low energy prices and associated elevated uncertainty. This is reflected in a large decrease in the indicator of past sales growth (Chart 2). As the effects from the pandemic continue, firms expect slower sales growth ahead (Chart 3, blue bars). More than half of all businesses anticipate their total sales over the next 12 months will be lower compared with the past 12 months. These expectations are backed by a sharp deterioration in indicators of future sales (such as sales inquiries and order books) (Chart 3, red line). Now at a record-low level, future sales indicators are suggesting a notable decline in sales growth in the near term. Softer sales expectations are widespread across all regions and sectors, with firms often expressing a high degree of uncertainty about consumer behaviour and future demand. Weakness is most prevalent among firms in tourism-dependent, finance and real estate industries as well as those linked to commodities, particularly energy. However, many businesses expect the weakness in their sales to be temporary and not extend over the entire 12-month period ahead. Half of firms anticipate that their sales will mostly recover within the next year as pandemic-related impacts recede (Box 1). Most of these businesses either reported a drop in their past sales or expect future sales to be lower, but not both.

Chart 2: Past sales growth

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

Chart 3: 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:

Half of exporters expect their sales abroad to decrease over the next 12 months. This is supported by the widespread view that indicators of future sales to foreign customers have deteriorated. This result suggests export sales will substantially decline in the near term. On balance, negative views on sales are concentrated among services sector exporters. In contrast, many exporting manufacturers either expect their sales to mostly recover within the next 12 months, or they sell non-cyclical goods and were not negatively affected by COVID‑19. These firms often noted sustained demand from the United States and, to a lesser extent, Asia.

Firms signalled a significant decrease in capital spending over the next 12 months, with the balance of opinion on investment intentions in machinery and equipment turning to a near-record low (Chart 4). Diminished investment plans are widespread across most regions and sectors but are most prevalent in the Prairies. Businesses reported that their investment plans are held back for reasons related to the pandemic: reductions in domestic demand, restrictions on exports and balance sheet concerns. Many firms are limiting spending to the maintenance of existing equipment. Businesses that intend to increase their capital expenditures often cited doing so to support their digitalization strategy or productivity improvements, sometimes in the context of staff working from home.

Chart 4: Investment intentions

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

A majority of firms that recently laid off workers have plans to refill at least some positions in the next 12 months (Box 1). Partly because of this, the indicator of employment intentions remains positive (Chart 5), although it continues to trend down. Still, many firms do not intend to increase the size of their workforce and often attributed their muted hiring plans to weak sales expectations.

Chart 5: Employment intentions

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

Pressures on production capacity

The number of firms that reported they would have difficulties meeting an unexpected increase in demand has fallen sharply (Chart 6). This mostly reflects a decline in Central Canada from previously elevated levels. Capacity pressures were already low in energy-producing regions and remain so. A majority of firms reported that they are operating below capacity because of a pandemic-related collapse in demand. Most firms reported that they would be able to resume normal production within one month after government restrictions are lifted (Box 1).

Chart 6: Capacity pressures

  Last observation:

The share of businesses reporting that labour shortages are restricting their ability to meet demand has declined significantly (Chart 7, blue bars), with fewer reports of shortages from firms in Central Canada. Across all regions and sectors, and especially in energy-producing regions, firms cited less intense labour shortages than 12 months ago (Chart 7, red line). These results suggest a broad-based increase in labour market slack. Several firms noted that, if needed, they would easily be able to fill positions from the larger pool of available labour resulting from the pandemic. However, a few businesses noted that the Canadian Emergency Response Benefit has made it difficult to retain current workers or hire new staff.

Chart 7: Labour shortages

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

Prices and inflation

Responses to questions on input prices, output prices and inflation all reflect expectations of slower price growth. The balance of opinion for input price growth is near zero (Chart 8). However, this masks a large increase in the number of businesses expecting an outright decline in input prices. Downward price pressure is concentrated among services sector firms. It is often linked to lower commodity prices, particularly for energy, and weaker demand conditions due to the pandemic for the products or services they purchase. Conversely, other firms noted positive pressures associated with supply chain disruptions and the recent depreciation of the Canadian dollar. Firms expect the effects of the depreciation to flow through to their costs of imported inputs.

Chart 8: Input prices

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

On balance, businesses expect much slower output price growth (Chart 9). Most firms that anticipate slower growth in output prices intend to reduce their selling prices. Weak demand conditions due to the pandemic are the main source of negative price pressure. Despite some pressure from costs related to COVID‑19 (e.g., personal protective equipment, cleaning services, plastic barriers), businesses intend to moderate their output price growth and operate with smaller margins to remain competitive. However, some firms noted that these higher costs will eventually be passed on to their customers. Other businesses cited that they will pass along increased prices related to supply chain disruptions and the recent depreciation of the Canadian dollar.

Chart 9: Output prices

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

Firms’ inflation expectations declined significantly to a near-record low. Many businesses anticipate inflation will be below 1 percent over the next two years (Chart 10); a few of these firms expect negative price growth. Still, the majority of businesses expect inflation to remain within the Bank’s inflation-control target range of 1 to 3 percent. Expectations of weaker price growth were attributed to soft demand and low energy prices, while many of those expecting higher price growth cited rising food prices. A notable share of firms, considerably more than usual, referred to uncertainty about future price growth and did not provide any prediction of inflation.

Chart 10: Inflation expectations

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Credit conditions

The positive balance of opinion on credit conditions points to a tightening over the past three months (Chart 11). Reports of less favourable terms and conditions were widespread across most regions and sectors. The tightening was commonly attributed to higher borrowing costs or a decrease in the market’s receptiveness to new issuance of debt or equity. By the time of the survey, government programs, Bank of Canada facilities, and loan payment deferrals had started to ease overall financial conditions. Some firms mentioned these programs as helping to improve their access to credit.

Chart 11: 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:

Box 1: Firms expect production could return quickly but anticipate sales will recover gradually

As part of the Bank of Canada’s efforts to better understand the economy’s recovery from the COVID‑19 pandemic, we asked firms participating in the summer 2020 Business Outlook Survey how quickly they expect their sales, employment and production to return to pre-COVID‑19 levels.1 Firms reported that, while capacity could resume quickly as the economy reopens and containment measures are lifted, the recovery in demand is expected to be more gradual. Across the response categories, businesses commonly referred to elevated uncertainty regarding future demand.

Firms’ expectations of a return in sales to pre-pandemic levels often depend on the lifting of government-mandated restrictions. About 40 percent of businesses reported that they anticipate their sales will fully recover by next year or that their sales were not negatively affected by the pandemic (Chart 1-A). This set of firms also expect the size of their workforce to be near pre-pandemic levels in one year. These firms generally did not report recent staff layoffs or declines in their past sales. They either sell non-cyclical goods or services or work within long-term contracts and include manufacturers, business-to-business services firms (e.g., providers of consulting or technology services) and utilities. About 15 percent of businesses expect their sales to mostly recover in the next 12 months. They are primarily in manufacturing. Among these firms, roughly half reported a decline in past sales and most had laid off workers.

Chart 1-A: More than half of firms expect their sales and employment levels to be near pre-pandemic levels within a year

Chart 1-A: More than half of firms expect their sales and employment levels to be near pre-pandemic levels within a year

To what extent do you think your sales/workforce will be back to pre-COVID-19 levels in the next 12 months? Percentage of firms in expanded sample (119 firms)

Fully return, unaffected or benefited4770
Mostly return1911
Partially return or too uncertain4318
No return915
Not answered15

Slightly less than half of businesses expect at most a partial recovery in their sales over the next 12 months or report that the trajectory of their sales is too uncertain to predict. These expectations are concentrated among firms in the services sector, especially those in tourism-dependent, finance or real estate industries, as well as businesses linked to commodities, particularly energy. Most of these firms reported declines, often significant, in their past sales and had recently laid off workers. Many of these businesses have frozen hiring or do not anticipate a return to previous employment levels. Some noted they have streamlined operations, often with the use of technology, in response to the crisis. Around a third of this group of firms said the Canada Emergency Wage Subsidy program has helped them reduce or avoid layoffs.

When asked about production, most businesses reported they would be able to return to normal levels within a month once restrictions are lifted (Chart 1-B), suggesting the capacity of these firms to produce has not been reduced. Generally, businesses in the services sector would be able to resume full operations somewhat faster than those in the goods sector. Services sector firms that expect a slower return to normal production often noted that labour-related constraints would be the reason for the delay. Some goods firms reported that it would take longer to scale back up because of complex production processes or logistical issues. A few businesses noted supply chain issues related to the pandemic.

Chart 1-B: Most businesses can resume normal production within a month

Chart 1-B: Most businesses can resume normal production within a month

Once restrictions are lifted, how long would it take for production to return to normal? Percentage of firms in expanded sample (119 firms)

Less than 1 week or unaffected71
1 week to 1 month22
1 to 6 months or too uncertain14
More than 6 months4
Not answered8
  1. 1. The Bank reached out to an additional 19 firms to better understand the nature of the recovery, resulting in a total sample of 119 firms for the analysis in this box. The full sample is representative of Canadian gross domestic product by sector, region and firm size.[]

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 by phone and video conference from May 12 to June 5, 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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