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Results of the fourth-quarter 2023 survey | Vol. 20.4 | January 15, 2024

Results from the Business Outlook Survey and the Business Leaders’ Pulse show that softer demand and renewed competitive pressures are slowly pushing down growth in output prices. Concerns about labour shortages are receding; even so, wage growth is expected to ease only gradually. Partly because of this slow easing, firms expect inflation to remain above the Bank of Canada’s 2% target for some time.


  • Firms’ pricing behaviour is slowly returning to normal; however, some businesses continue to make larger and more frequent price increases than they did before the COVID‑19 pandemic. Firms increasingly see demand and competition as moderating their output price growth. Nonetheless, businesses reported that downward pressure on the growth of their input and output prices has eased somewhat, leading to a less negative Business Outlook Survey indicator.
  • Firms reported less favourable business conditions in the fourth quarter. Many saw declines in sales volumes. Indicators of future sales, such as order books and sales inquiries, have deteriorated compared with a year ago. But, on balance, firms expect sales to stabilize over the next 12 months.
  • Amid continued high interest rates, businesses’ top concerns have shifted to demand and uncertainty about economic conditions. High interest rates have negatively impacted a majority of firms, and these firms have relatively muted sales outlooks, modest investment intentions and weak hiring plans.
  • Softer demand also means labour markets are easing. Most firms do not feel the need to add new staff and are experiencing less-intense labour shortages than 12 months ago. Still, wage growth on average is expected to be higher than normal over the next 12 months, often related to cost-of-living adjustments. Wage growth expectations are gradually declining, however, as fewer businesses adjust wages for past cost-of-living increases and as demand for labour eases. The majority of firms think wage growth will be back to normal by 2025.
  • Inflation expectations have been slowly trending down. But about one-quarter of firms think it will take longer than four years for inflation to return to 2%. They noted in particular the impacts of increases in wages, food prices and housing costs.

Firms report less favourable business conditions

Firms said that business conditions continued to deteriorate in the fourth quarter (Chart 1). Weaker sentiment is broad-based across sectors and firm sizes.

Chart 1: Business sentiment fell sharply throughout the fourth quarter of 2023

Businesses’ top concerns have increasingly shifted to demand, credit and uncertainty around economic conditions (Chart 2). Cost pressures still remain a top issue. Concerns about capacity pressures—namely, labour shortages and supply chain issues—have become more localized to particular industries, products and skills.

Chart 2: Top concerns have shifted to demand and uncertainty

Fewer firms plan unusually large price increases

Some businesses indicated that the size and frequency of their price increases will be greater than normal over the next 12 months (Chart 3). Those firms cited the following drivers behind their unusually large or frequent planned price increases:

  • high wage costs
  • continued pass-through of previous growth in input costs
  • efforts to recover profit margins that had been compressed in recent years

Chart 3: Mentions of plans for abnormally large price increases have decreased

Nonetheless, firms expect the size of their price changes to continue to moderate over the next 12 months. Fewer businesses than last quarter plan larger-than-normal increases in their output prices. Many firms expect growth in their input prices to diminish. Weaker demand and heightened competition compared with the past 12 months are placing downward pressure on price growth (Chart 4). Yet few firms reported cutting prices, and the number of those that plan to reduce prices remains at the historical average. Instead, businesses are working to:

  • curb costs where they can, including by slowing their hiring
  • grow their sales revenues by, for example, seeking new markets or changing their product mix

Chart 4: Demand and competitive pressures are weighing on firms’ price growth

High interest rates are moderating firms’ activity

Firms’ past sales growth weakened again in the fourth quarter. Businesses widely reported that their current sales levels are lower than usual—more than one-third of respondents experienced an outright decline in sales over the past 12 months (Chart 5). Firms often attributed weaker demand to:

  • their customers’ financial situations
  • the economic slowdown in Canada and globally
  • the impacts of higher interest rates and inflation

Growth has been particularly muted in construction and real estate. Firms in these sectors mentioned projects being put on hold over the past 12 months, often because of:

  • high interest rates causing demand to decline and financing costs to rise
  • high construction costs
  • general economic uncertainty

Chart 5: More firms saw outright sales declines over the past 12 months

Roughly three-quarters of firms said they are being negatively impacted by higher interest rates. These firms have more negative sales outlooks as well as weaker intentions to hire and invest in the next 12 months than other firms.

The near-term outlook for sales remains subdued. Indicators of future sales (e.g., order books, advance bookings, sales inquiries) have, on balance, deteriorated compared with 12 months ago (Chart 6, red line). Firms tied to consumer spending have notably weak outlooks for the next 12 months. These businesses mentioned that customers are:

  • buying cheaper goods instead of costlier options
  • purchasing in bulk
  • looking for discounts to stretch their dollar

Some firms also expressed concern about upcoming mortgage renewals further reducing people’s disposable income. Indeed, the Canadian Survey of Consumer Expectations—Fourth Quarter of 2023 finds that homeowners set to renew their mortgages plan to cut spending to lessen the impacts of higher payments.

At the same time, businesses do show some signs of optimism. Overall, firms expect their sales growth to improve in 2024 (Chart 6, blue bars). This partly reflects a stabilization of sales volumes after weak growth—or outright declines—over the past year. Some firms expect the impacts from previous monetary policy tightening to peak in the first half of 2024 and demand to pick up later in the year. This is particularly true for those in housing and related sectors and often stems from a belief that interest rates will come down over the next year. In addition, firms that are not negatively affected by higher interest rates generally expect robust sales growth in the coming 12 months.

Chart 6: Firms’ sales outlooks remain modest

Firms are seeing the impacts of higher interest rates on financial conditions. One-quarter of businesses reported they face higher borrowing costs than six months ago because of prime interest rates. Some also saw a widening in the spread between the prime interest rate and the rate charged by lenders. In addition, firms noted tighter non-price conditions, such as lenders placing limitations on lines of credit and being less receptive to new debt or equity. Further, the share of businesses having difficulty accessing credit is notably higher than before the pandemic (Chart 7). Consumer-facing firms (e.g., retail, housing and accommodation, food and recreation) are among those experiencing the most difficulty obtaining credit. This often reflects lenders’ expectations of continued weakening in consumer spending.

Chart 7: Credit conditions are tightening

Faced with weaker demand and tighter credit conditions, many firms are focusing their upcoming investments on repairing and replacing their existing stock of capital rather than on expanding operations (Chart 8). Higher interest rates and slowing demand are causing some businesses to delay investment plans. However, investment intentions are healthy for firms in the natural resource sector. Energy companies generally plan to increase their investment because of:

  • improved balance sheets
  • moderate to high energy prices
  • expectations of increased pipeline capacity in the near future

Chart 8: More firms plan to repair and replace equipment than expand operations

Businesses see labour markets easing

In this environment of soft sales expectations and high interest rates, nearly half of firms plan to maintain the size of their workforce (Chart 9, orange bars). Businesses reported that they do not need to hire or that they generally are filling only existing roles and not creating new positions. In addition, an increasing share of firms are planning to make modest reductions in staffing. With less competition for labour, businesses that are hiring are finding it easier to recruit qualified candidates. This is helping to reduce the intensity of labour shortages compared with last year (Chart 9, solid line). Some also noted that the number of recent immigrants is contributing to improved labour supply. Significantly fewer firms than in recent quarters mentioned the need to increase overtime because of labour shortages.

The share of businesses that reported facing a labour shortage that restricts their ability to meet demand is near its historical average. Firms indicated their current labour shortages are linked mainly to longer-term structural issues, including:

  • pockets of high demand for certain skills, such as those in the trades and engineering
  • an aging workforce and related retirement of highly experienced workers

Firms are responding to these structural labour shortages through wage increases and additional recruiting efforts.

Chart 9: Firms reported lower employment demand and less-intense labour shortages

With reports of decreased tightness in labour markets, firms are also noting less upward pressure on wages. The average expected wage increase that firms plan to give their staff in the next 12 months continues to trend down (Chart 10). This is broadly consistent across regions and sectors. Firms said that raising wages is becoming less important for:

  • attracting new employees
  • retaining existing staff
  • catching up to market wages

Nevertheless, businesses expect their wage adjustments to be higher than average over the next 12 months. Many firms said they need to adjust wages to account for the rising cost of living. Some have already completed these increases, while others plan to do so in the next 12 months. Union negotiations and regulations are also seen as putting upward pressure on wages. About three-quarters of firms expect wage growth to return to normal by 2025.

Chart 10: Wage growth continues to trend downward

Inflation expectations remain high

Short-term inflation expectations are slowly trending downward. Overall, however, businesses still expect inflation to remain elevated over the next two years (Chart 11). Most businesses that expect inflation to remain high in the short term link their expectations to wage growth in the Canadian economy and the prices of commodities, food and housing.

Despite the declining trend in short-term inflation expectations over the past year, the share of businesses that believe inflation will not return to the Bank of Canada’s 2% target in the next four years has risen to about one-quarter of firms. These businesses often cited high prices for energy, food and housing as the main obstacles to a quicker return to the inflation target. Although these firms expect inflation to be high for a long time, only a few are changing their behaviour in line with their outlook, for example, by adjusting their investment plans and sales strategies.

Chart 11: Firms’ short-term inflation expectations have been slowly trending down

Survey results summarize opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.

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 November 14 to December 1, 2023. Additional information on the survey and its content is available on the Bank of Canada’s website.

The Bank of Canada’s Business Leaders’ Pulse is a survey of 700 to 800 Canadian business leaders who respond to one of three short online questionnaires each month. This publication contains results from the October, November and December 2023 surveys. For more information on the Business Leaders’ Pulse, see T. Chernis, C. D’Souza, K. MacLean, T. Reader, J. Slive and F. Suvankulov, “The Business Leaders’ Pulse—An Online Business Survey,” Bank of Canada Staff Discussion Paper No. 2022-14 (June 2022).

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