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Results of the first-quarter 2023 survey | Vol. 20.1 | April 3, 2023

Results from the first-quarter 2023 Business Outlook Survey and the Business Leaders’ Pulse surveys from January through March 2023 show a subdued sales outlook and plans for modest growth in capital expenditures. The labour market remains tight, but pressures have eased from high levels.


  • Interviews for the Business Outlook Survey (BOS) were conducted before pressures on the global banking system increased in early March. Results from the Business Leaders’ Pulse (BLP) suggest that business sentiment has not changed much since then.
  • As in recent surveys, businesses anticipate that their sales will grow but at a slower pace. For many firms, this slowdown will follow a period of exceptional strength over the past year. Businesses also link their expectations of weaker sales growth to interest rate increases, high inflation and concern about a recession. Some firms, mostly those whose sales depend on housing activity and household consumption, expect outright sales declines, but the share of these firms is smaller than in the previous survey.
  • Generally, businesses plan to invest more in the next 12 months. However, positive investment intentions have decreased in each quarter since early 2022, reflecting the impact of higher interest rates and recession worries.
  • Firms continue to view the labour market as tight, though labour shortages and wage growth pressures have eased. Demand for labour has softened over the past several quarters but continues to be robust—more than half of firms still plan to increase their workforce over the next 12 months.
  • Firms’ inflation expectations have moderated, but most businesses still think inflation will stay well above 2% until at least 2025.
  • Businesses anticipate that their input and output price increases over the next year will remain larger and more frequent than usual. However, as supply and demand continue to normalize, firms expect the size and pace of output price increases to moderate from those over the past 12 months. This suggests that firms are gradually shifting closer to their normal price-setting practices.

The BOS indicator has declined again

The BOS indicator has moved down again (Chart 1).1 The decline is broad-based across regions and sectors. It reflects expectations for slower price growth and an easing in capacity pressures from exceptionally high levels, due in part to improved supply conditions. But pressures on prices and capacity—including labour—remain. As they did last quarter, firms expect slower sales growth.

Firms participating in the BLP continue to express considerable concern over cost pressures, labour shortages and uncertainties stemming from high interest rates and inflation (Chart 2).

Chart 1: The BOS indicator continues to decrease as price expectations and capacity pressures ease

Chart 2: Cost pressures remain the top concern of firms

On average, business sentiment among firms surveyed in the BLP for the first quarter of 2023 is similar to that of the previous quarter (Chart 3). Results suggest that business conditions have not changed much since pressures on the global banking system increased.

While about half of firms have incorporated the risk of a recession over the next 12 months into their business plans, they expect any potential recession to be mild. Some firms planning for a recession expect softer demand growth and are less likely to add staff or increase their investment spending. Most, however, are not currently making major changes to their operations.

Chart 3: Business sentiment is roughly unchanged

Firms expect slower sales growth

For the fifth consecutive quarter, businesses expect their sales growth to slow (Chart 4, blue bars). For many firms, this expectation follows a period of significant sales increases over the past year. Expectations of moderating sales growth are broad-based across regions, firm sizes and most sectors. Indicators of future sales (e.g., sales inquiries and order books) have improved only narrowly compared with 12 months ago, pointing to subdued demand growth ahead (Chart 4, red line).

Several businesses, especially those affected by housing market activity, continue to expect increased interest rates to have a direct negative impact on demand. Firms anticipating slower sales growth also refer to:

  • recession worries
  • the impact of high inflation on consumers’ disposable income

Despite these signs of softening, most businesses—more than in the previous survey—anticipate that their sales will grow. Firms linked their expected sales increases to various factors, including the following:

  • Demand for hospitality, tourism and travel services continues to normalize, mainly due to a return of business-related activities (e.g., travelling for work, conferences) and foreign visitors.
  • Activity in natural resources industries is increasing due to favourable commodity prices.
  • Firms are developing new products, reducing their exposure to markets with weaker demand and making an effort to enter new markets.

In recent quarters, businesses have reported that supply chain issues are resolving and having less of an impact on sales.

Chart 4: Businesses expect their sales growth to slow

After weakening for four consecutive quarters, the indicator for firms’ investment intentions has stabilized near its historical average (Chart 5). Many firms in the BLP and the BOS have already reduced, or plan to reduce, their capital expenditures because they are concerned about a possible recession or are constrained by higher interest rates and tightening credit conditions. Weak investment intentions in Central Canada are offset by strong investment intentions in the Prairies, where high commodity prices continue to boost activity. Investment intentions remain supported by firms’ long-term plans, especially for digitalization and automation. But support has slowly waned as the economy has cooled.

Chart 5: Firms’ plans to increase investment have stabilized after trending down recently

The labour market remains tight, but pressures have moderated

Survey results indicate that the labour market is still tight:

  • Labour shortages continue to be the second most important issue facing firms (Chart 2).
  • The average size of planned wage increases is still well above its historical average but lower than its peak (Chart 6). At the same time, private sector workers participating in the Canadian Survey of Consumer Expectations think their pay will increase at a higher rate in the next year.
  • Firms’ demand for labour remains healthy. More than half of businesses plan to increase the size of their workforce in the next 12 months. Businesses intending to add workers mentioned:
    • accommodating expected sales growth or expanding their operations
    • using the opportunity of improved labour supply and reduced competition for labour to staff vacant positions that have been hard to fill

Chart 6: Firms expect their wage increases to remain high

However, some signs suggest that pressures on both the labour market and wage growth are easing:

  • The share of firms noting labour-related bottlenecks that would make it hard for them to meet an unexpected increase in demand has fallen sharply to pre-pandemic levels (Chart 7, yellow line).
  • For the first time in more than two years, the labour shortage intensity indicator is firmly negative (Chart 8, red line). On balance, businesses view current labour shortages as less intense than a year ago when they were extremely high. Firms indicated that it has become easier to find the workers they need. They attribute this to less competition for labour and an improved labour supply (e.g., as new arrivals to Canada enter the labour force).
  • The share of firms reporting binding labour shortages has declined again and is now at its historical average (Chart 8, blue bars).
  • Firms surveyed in the BLP expect the pace of their wage increases to slow materially over the next 12 months and then to maintain that pace for the next two to three years.

Chart 7: Reports of labour-related bottlenecks have fallen

Chart 8: Firms suggest labour market tightness is easing

Firms expect inflationary pressures to ease

Although still elevated, firms’ short-term inflation expectations have moderated slightly (Chart 9). Businesses attribute persistent inflationary pressures mainly to high labour costs and strong domestic demand. Compared with recent surveys, fewer firms this quarter mentioned supply chain issues and energy prices as sources of future inflation.

Even with the softening in short-term inflation expectations, most businesses still think inflation will stay well above the Bank of Canada’s 2% target until at least 2025 (Chart 10). Of the firms that expect inflation to be back to 2% before 2025, many think the return will be the result of monetary policy actions the Bank has taken over the past 12 months.

Chart 9: Firms’ short-term inflation expectations have edged down but remain high

Chart 10: Most firms anticipate inflation will be well above 2% until at least 2025

In keeping with their outlook for short-term inflation, firms also expect disinflationary pressures on their input and output prices (Chart 11). Businesses anticipate that the sources of moderating output price increases will include:

  • lower commodity prices
  • slower price growth for non-commodity goods
  • softer demand conditions
  • easing price pressures linked to improving supply chains

For the first time in several quarters, businesses no longer expect labour costs to put upward pressure on their output price growth.

Since 2021, a combination of strong demand and supply constraints has led to more frequent and larger price changes for many firms.2 Businesses continue to expect larger and more frequent increases in their selling prices over the next 12 months compared with before the pandemic. They link the persistence of these pressures mainly to lags in the pass-through of past input price growth. Since supply and demand have begun to normalize, firms in the BLP expect the size and pace of price changes to gradually decline over the next year (Chart 12). This suggests that firms are gradually shifting closer to their normal price-setting practices.

Chart 11: Businesses expect growth in their selling prices to moderate

Chart 12: Firms expect the size and frequency of their price changes to gradually shift closer to normal

  1. 1. The BOS indicator now includes the share of firms reporting past sales declines. This replaces the balance of opinion on past sales growth, which was discontinued in the first quarter of 2023. Revisions to the level of the indicator are minor. A backgrounder outlining the motivation for and implications of the change is forthcoming and will be published on the Bank’s website.[]
  2. 2. See R. Asghar, J. Fudurich and J. Voll, “Firms’ inflation expectations and price-setting behaviour in Canada: Evidence from a business survey,” Bank of Canada Staff Analytical Note No. 2023-3 (February 2023).[]

The Business Outlook Survey summarizes interviews conducted by the Bank’s regional offices with the senior management of about 100 firms selected to reflect the composition of the gross domestic product of Canada’s business sector. This survey was conducted by phone, video conference and in-person interviews from February 6 to 24, 2023. 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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