Business Outlook Survey—Spring 2021

Results of the Spring 2021 Survey | Vol. 18.1 | April 12, 2021

Results from the spring Business Outlook Survey suggest that business sentiment continues to improve. Firms reported less uncertainty related to the COVID‑19 pandemic and strengthening demand from weak levels. Still, the recovery remains uneven, with firms tied to high-contact services facing ongoing challenges.


  • Interviews conducted from mid-February to early March revealed continued improvement in business sentiment after a difficult year.
  • Domestic and foreign sales prospects have picked up from weak levels a year ago, but the outlook remains challenging for firms tied to high-contact services.
  • Many businesses intend to increase their investment spending to meet growing demand and add needed capacity, often through digitalization and automation. Plans to hire are common for firms with healthy sales outlooks.
  • Reports of capacity pressures are frequent among businesses facing strong demand, but significant excess capacity remains among firms hit hard by the pandemic.
  • Firms expect positive pressures on the growth of their input prices, wages and output prices. Inflation expectations increased but most remain in the Bank of Canada’s 1 to 3 percent inflation-control target range.

The recovery continues to broaden, but weakness remains

The Business Outlook Survey indicator moved up again, signalling further improvement in business sentiment (Chart 1). Business confidence across all regions has strengthened. Many firms consider the impacts of the pandemic on their activities to be behind them. Firms’ outlooks for domestic and foreign demand have improved from low levels a year ago, as most businesses are no longer preoccupied with pandemic-related uncertainty. Still, some businesses tied to high‑contact services continue to report weakness in demand.

Chart 1: Business sentiment continues to improve

* The BOS indicator is a summary measure of the main survey questions that gauges overall business sentiment. Last observation:

Demand has improved outside of high-contact services

Nearly two‑thirds of firms indicated their sales have reached or exceeded pre-pandemic levels—an increase from the winter survey and a sign that the recovery is broadening further (Chart 2). Half of businesses reported that the second wave of containment measures and lockdowns had a smaller or no adverse impact on their sales compared with the first wave. Firms noted that this is largely because they themselves—and their customers—have adapted to the evolving crisis. For example, businesses now have greater capacity for more online sales, staff are set up and familiar with remote work, and cleaning and physical distancing protocols are in place.

With uncertainty having receded and vaccination rollouts continuing, firms’ indicators of future sales have strengthened again (Chart 3). For many businesses, demand from domestic and foreign customers—particularly from the United States—has improved from a year ago. Firms’ sales outlooks are also supported by low interest rates and a shift in consumer preferences to products and services that make it easier for Canadians to stay at home and reduce contact with others. For example, firms tied to housing and household goods (such as those that provide construction, financial and real estate services, as well as building materials, appliances and food) commonly reported that their sales indicators are up from already solid levels. Business service providers are also seeing stronger demand, sometimes as firms change their ways of doing business during the pandemic (e.g., adopting new digital platforms and applications). Exporters linked to commodities also noted that demand has improved, albeit from subdued levels.

Still, the negative effects of the pandemic continue to weigh heavily on sales prospects for an important group of businesses. One‑fifth of firms do not expect their sales to return to pre‑pandemic levels in the next 12 months. Most of these firms are tied to high‑contact services, such as businesses in tourism and in pockets of non‑essential retail. Some of these firms indicated their sales outlooks have slightly improved, but from a period of extremely weak demand. A few businesses remain uncertain about their sales outlooks because the evolution of the pandemic is still unclear.

Chart 2: Nearly two-thirds of firms report their sales are at or above pre-pandemic levels

Unaffected, positively affected or recovered645238
0–25% lower252538
25–50% lower51312
50–75% lower266
75–100% lower446

Chart 3: Signals of improved demand are widespread

* Percentage of firms reporting that indicators have improved minus the percentage reporting that indicators have deterioratedLast observation:

Pre-pandemic labour constraints are starting to return

The number of firms that would have difficulty meeting an unanticipated increase in demand is near its historical average, with several businesses citing significant difficulties (Chart 4). This suggests that capacity pressures are moderate. Businesses facing strong demand—especially those linked to housing and household goods—often noted capacity constraints. The most common bottlenecks are related to labour. Many firms reported difficulties finding new workers at the current wage or that their workforce is now fully utilized. Similar to before the pandemic, these constraints are namely in skilled trades and information technology, as well as rural or remote regions lacking sufficient qualified labour. Many firms expect these constraints to persist. Reports of supply chain frictions related to the pandemic remain higher than usual but have eased since the winter survey. Firms tied to high‑contact services continue to report significant excess capacity due to ongoing weak demand.

Chart 4: Capacity pressures are at the historical average

  Last observation:

Firms plan to increase their investment spending and their workforce

Firms planning to increase investment because they are reaching the limits of their existing productive capacity are focused on implementing new technologies. This is clear among businesses facing strong demand, such as those tied to housing and household goods. Several of these firms reported labour constraints, and their investment plans often include automation efforts to increase output using their existing workforce. Other firms are planning to add capacity through investments in digitalization to promote online sales and support their remote workers. For example, firms are investing in consumer‑facing digital platforms (e.g., online ordering, mobile applications) as well as other information technologies (e.g., software, servers, laptops) that make remote work more productive and allow firms to access distant pools of labour.

Still, some unevenness persists in firms’ investment outlooks. Businesses hit hard by the pandemic continue to have muted investment intentions. These firms noted that their cash flow or balance sheet position and uncertainty related to the pandemic are holding back their capital spending plans. Some of these businesses intend to make small increases in their investment expenditures from a low level, while others are further delaying investments they put off earlier in the pandemic. A few firms noted that their planned investment spending on office space is reduced now that their employees are working remotely.

Chart 5: Firms plan to invest more

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

Chart 6: Healthy demand and limits on current capacity are key drivers of firms’ investment plans

*Export-oriented firms only

Reasons for firms’ planned investment expenditures over the next 12 months (percentage of firms)ImpedimentsDrivers
Long-term strategy or schedule559
Export demand1134
Domestic demand627
Existing capacity224
Previous year investment1218
Cash flow or balance sheet position108

Firms’ employment outlooks also remain uneven. Three-quarters of businesses reported that their staffing levels were not negatively affected by the pandemic or have fully recovered. Plans to hire are common among these firms and are often tied to expected increases in sales (Chart 7). Of the remaining one-quarter of firms, several reported that the Canada Emergency Wage Subsidy program has helped them reduce layoffs or refill some positions quickly. Many of these remaining firms do not expect a full return to pre-pandemic employment levels within the next 12 months. These businesses are concentrated in tourism and non-essential retail. The weakness in hiring plans among these firms suggests the recovery in the labour market will be protracted.

Chart 7: Many firms plan to increase the size of their workforce

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

Expectations of inflationary pressures are widespread

More than half of firms expect positive pressures on the growth of their input prices (Chart 8, red bars). Many businesses now anticipate that commodity‑related prices (e.g., fuel, building materials, agricultural products) will be the main source of rising cost growth. Several firms, but fewer than in the winter survey, expect elevated shipping and freight fees to remain a source of upward pressure. Other businesses indicated positive pressure on the growth of subcontracting fees. Firms also now expect wages to grow at a faster pace. For some businesses, this follows wage freezes or weak wage growth experienced earlier in the pandemic.

Because of improved demand conditions and a desire to rebuild their margins, firms across most sectors intend to increase their selling prices at a greater rate than over the past 12 months, although often from a low level (Chart 8, blue bars). Indeed, for many businesses, their expected output price increases remain modest. Several firms said they intend to pass cost increases, particularly those related to commodities, on to their customers.

Chart 8: Firms intend to increase their selling prices at a greater rate

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

Inflation expectations have increased. Over half of firms expect inflation to be above the midpoint of the Bank of Canada’s inflation‑control target range of 1 to 3 percent over the next two years (Chart 9). These businesses attributed their views to strong demand supported by fiscal and monetary stimulus measures or to expected surges in consumer spending—caused by pent‑up demand—when restrictions ease. As in recent quarters, several firms did not respond to the question, which suggests more uncertainty than usual around firms’ outlooks for inflation.

Chart 9: Over half of firms expect inflation to be above 2 percent

Last observation:

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 February 16 to March 8, 2021. 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.