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Results of the Winter 2020–21 Survey | Vol. 17.4 | January 11, 2021

In the winter Business Outlook Survey, firms pointed to a continued recovery supported by strengthening domestic and foreign demand, particularly in goods-producing sectors. Still, firms expect the recovery to be uneven; in particular, businesses that have been hit hard by the pandemic anticipate challenging times ahead.


  • Interviews for the Business Outlook Survey were conducted from mid-November to early December. This was before some provincial governments further tightened restrictions to contain the pandemic and after announcements were made about effective vaccines.
  • The Business Outlook Survey indicator continued to recover from the near-record low levels of the summer and autumn surveys and turned slightly positive, signalling improved business sentiment.
  • Although about half of firms reported that their current sales are below pre-pandemic levels, most firms expect sales to increase in the next 12 months as the economy recovers. Still, one-third of businesses, mostly those that provide high-contact services, do not anticipate sales to return to pre‑pandemic levels in the next year.
  • In light of strengthening demand, most firms reported stronger investment and hiring plans.
  • Survey results point to increased positive pressures on input costs, largely related to rising freight costs. Because of improved demand conditions, more firms plan to pass these higher costs through to their output prices.
  • Overall, consumer price inflation is expected to remain somewhat below 2 percent over the next two years.

Business Outlook Survey indicator

The Business Outlook Survey indicator continued to recover and turned slightly positive, signalling improved business sentiment (Chart 1). This reflects the fact that many indicators moved up as economic conditions partially recovered from extremely low levels seen earlier in 2020. Employment and investment intentions saw the largest increases since the autumn survey. Robust foreign demand, improved confidence related to vaccines, and ongoing government relief programs all contribute to the improved outlook. Although business sentiment has strengthened broadly, it remains solidly negative for many firms, including those in high-contact services. These firms expect demand to remain weak for some time because of concerns around COVID‑19.

Chart 1: BOS indicator

Last observation:

Business activity

Most businesses reported slower sales growth over the past 12 months compared with the previous 12 months (Chart 2). Roughly half of firms noted an outright decline of their sales, mostly because of impacts from COVID‑19. This proportion is similar to results from the summer and autumn surveys.

At the time of the winter survey, more firms reported improved indicators of future sales (such as order books and sales inquiries) than in the previous two surveys (Chart 3). Most firms expect their sales to increase, but several are uncertain about their sales outlook because the evolution of the pandemic remains unclear. Firms in goods-producing sectors have a positive sales outlook and generally anticipate a faster pace of sales growth over the next 12 months. Still, one-third of businesses do not expect their sales to return to pre-pandemic levels in the next 12 months, suggesting that the recovery will be uneven. These firms, which are lagging in the recovery and are mostly tied to high-contact services (e.g., tourism and restaurants), do expect sales to increase somewhat from their current low levels. Advancements in vaccine development also supported firms’ optimism, although most businesses anticipate that the positive impacts of a vaccine will not materialize until later in 2021.

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:

More exporters than in the autumn survey were positive about their sales outlook, but most are recovering from low levels of activity. They expect foreign demand—particularly from the United States—to be supportive. The majority of these firms are manufacturers (e.g., automobile, residential and commercial construction products), while some are commodities exporters (e.g., energy) and a few are in the services sector (e.g., transportation and logistics, technology and software).

Investment and hiring plans

The balance of opinion on investment in machinery and equipment moved up and now sits well above zero, with firms across all regions pointing to positive spending plans (Chart 4). This improvement reflects optimism among firms that were not negatively affected by the pandemic as well as recovering businesses’ expectations of a return to normal conditions. Citing emerging strength in sales, many firms reported plans to expand operations and boost productivity by investing in automation and digitalization. They also plan to improve the customer-facing component of their online business. While the overall outlook for investment has improved, the impact of the pandemic on spending plans remains uneven (Box 1). Several firms in high-contact services, including tourism and live entertainment, plan to hold back investment and spend less than they did over the past 12 months.

Chart 4: Investment intentions

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

Chart 5: Credit conditions

* Percentage of firms reporting their expectations on the prime rate

Firms’ employment outlook has improved from the previous two surveys (Chart 6). Businesses often link their hiring intentions with their expected recovery in sales over the next 12 months. Among firms with positive hiring plans, about half expect to ramp up the size of their workforce later in 2021, when they believe the pandemic will be largely under control. As in the autumn survey, half of firms reported that government support programs helped them to reduce layoffs or bring back staff. Still, results point to the uneven and lengthy recovery of labour markets, as one-quarter of firms expect the size of their workforce to remain below pre-pandemic levels for at least another year.

Chart 6: 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 rose to above its historical average (Chart 7). Capacity pressures were felt predominantly in goods-producing industries, where supply constraints intensified as demand improved. Many goods-producing firms reported experiencing long wait times sourcing materials—for example, from the United States or Asia. These challenges were most often related to the pandemic. Excess capacity remains in the services sector, particularly for firms tied to high-contact services, such as hotels and live entertainment.

Chart 7: Capacity pressures

  Last observation:

Pressures on firms’ capacity were also driven by difficulties in finding labour, which is reflected in more businesses reporting labour shortages (Chart 8, blue bars). Several firms noted that pandemic-related government income‑support programs were contributing to the difficulty in finding workers. Moreover, as demand strengthened, firms’ need for labour also increased, revealing pockets of labour market tightness that existed before the pandemic—namely in the trades, for technology workers and in remote regions. Consequently, the indicator on labour shortage intensity moved up to just below zero (Chart 8, red line).

Chart 8: Labour shortages

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

Wages, prices and inflation

The balance of opinion on wage growth expectations recovered to zero, which suggests that wage growth over the next 12 months is expected to be roughly the same as over the past 12 months (Chart 9). Improvements in wage growth since the autumn survey were fairly broad-based across sectors and regions, reflecting the lifting of wage freezes and the gradual return of pressures to attract and retain talent.

Firms expect both input and output prices to grow at somewhat faster rates over the next 12 months (Chart 10 and Chart 11). Businesses in the goods-producing sector frequently cited growing upward pressure on supply chain costs, mostly related to shipping and freight fees. In addition, a number of firms reported faster cost increases for commodities and other inputs, including subcontracting fees. Amid improved demand conditions, more firms are now able to pass most of these higher input costs on to their customers, notably for commodity and other non-labour inputs. This is particularly the case among goods-producing firms, especially in the manufacturing sector.

Chart 9: Wage expectations

* Percentage of firms expecting higher labour cost increases minus the percentage expecting lower labour cost increases Last observation:

Chart 10: Input prices

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

Chart 11: Output prices

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

After rebounding somewhat in the autumn survey, inflation expectations eased slightly. The majority of firms expect inflation over the next two years to be in the bottom half of the Bank of Canada’s inflation-control target range of 1 to 3 percent (Chart 12). Most businesses continue to view prolonged weak economic conditions as the main reason for limited inflationary pressures. In contrast, several of the firms anticipating inflation to be above 2 percent pointed to the ongoing economic recovery, supported by vaccine distribution and continued government support.

Chart 12: Inflation expectations

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Box 1: Investment intentions are uneven across sectors

Starting this quarter, Business Outlook Survey data by region, sector and firm size will be released online in four-quarter moving average form.1 These data will illustrate trends in businesses’ views of the Canadian economy at a disaggregate level.

Data on investment intentions show unevenness across sectors (Chart 1-A). In the commercial, personal and business services sector (CPBS), which includes high-contact services firms such as restaurants and hotels, investment intentions remain negative. These firms are often affected by containment measures, leaving them with spare capacity and little pressure to invest. Further, they do not anticipate a return to pre-pandemic levels of demand until containment measures are removed and consumers resume their spending on high-contact services. In the primary sector, the pandemic created conditions that led to further widespread cuts to investment spending. Investment plans in this sector were already reduced in 2019 because of uncertainty around pipelines and mandated oil production curtailments. The sector has started to recover more recently as some commodity prices have risen.

In other sectors, more firms are anticipating some pickup in demand and intend to increase investment spending. These include the trade and the finance, insurance and real estate (FIRE) sectors, where some businesses are moving forward with investments to facilitate online customer sales and service. Both the manufacturing and the construction, information, transportation and utilities (CITU) sectors include firms in or connected to high-contact services. But other firms in these sectors anticipate that demand, including from foreign sources, will improve, and they are planning to invest accordingly.

* Percentage of firms expecting higher investment minus the percentage expecting lower investment
Note: CITU is construction, information, transportation and utilities; FIRE is finance, insurance and real estate; CPBS is commercial, personal and business services.

  1. 1. More information is available in the Backgrounder on Business Outlook Survey data by region, sector and firm size. Because the data are four-quarter moving averages, they will not match the results of the current survey.[]

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 November 16 to December 4, 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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