Results of the fourth-quarter 2024 survey | Vol. 21.4 | January 20, 2025
The Business Outlook Survey was conducted by in-person, video and phone interviews from November 7 to 27, 2024. The Business Leaders’ Pulse is conducted online every month; the latest results are from October, November and December 2024.
Overview
- Overall business sentiment remains subdued, but firms are beginning to anticipate improvements in sales activity. Meanwhile, businesses expect growth in costs to continue to ease and growth in selling prices to stabilize.
- After a period of weak demand, firms expect their sales growth to improve over the coming year. This expectation is largely driven by recent interest rate reductions and the anticipation of further cuts ahead.
- With lower financing costs and improving demand outlooks, intentions to increase investment have become more widespread among firms. Part of this is a resumption of previous plans that were postponed.
- Most businesses reported having some spare capacity. Because of this, hiring plans remain modest. Binding labour shortages are not widespread, and most firms describe the availability of outside labour as improved compared with one year ago.
- Growth in firms’ selling prices has stabilized, while growth in wages and other input costs continues to ease. Inflation expectations have moved up slightly in recent months but remain within the Bank of Canada’s target range.
- Uncertainty about the effects of the new US administration is prevalent, with firms commonly anticipating higher input costs due to trade tensions.
Firms continue to face economic headwinds
Business sentiment remained subdued in the fourth quarter of 2024 (Chart 1). Similar to last quarter, firms mentioned the following factors weighing on sentiment:
- weak consumer spending and generally soft demand
- uncertainty about economic conditions
- taxes and regulations
There are, however, signs of emerging optimism, with business activity showing tangible improvements from its low level. These improvements are driven by lower interest rates and lower inflation. In this context, only 15% of firms are planning for a recession in Canada over the coming year, unchanged from last quarter but down significantly from the 38% of firms that reported this 12 months ago.
Chart 1: Business sentiment has remained subdued throughout 2024
Meanwhile, the Business Outlook Survey (BOS) indicator—a summary measure of questions in the BOS—continued to be below average because of slowing cost growth, including that of wages, and weaker-than-average capacity pressures (Chart 2). However, the BOS indicator has gradually picked up over the past five quarters as demand outlooks have improved from low levels and cost growth continues to normalize. Firms attributed the positive changes in demand indicators largely to the four interest rate cuts that had occurred between June and the time of the survey.
Chart 2: The BOS indicator has improved but remains below average
Firms were also asked in the Business Leaders’ Pulse in December about the expected impact of the new US administration on their business. While one-third of firms said it is too early to tell if they will be affected, 40% anticipate negative effects. The most common impact they expect is higher input costs (Chart 3). Several businesses mentioned that trade tensions would raise the general cost of goods. Some firms also said they have revised down their outlook for sales, investment and hiring. Expected impacts on selling prices are mixed: while some businesses plan to raise prices to pass along higher costs, others now plan to restrain their price increases to remain competitive.
Chart 3: Firms see a risk of higher prices and lower activity following the US election
Sales outlooks continue to show signs of improvement
Demand remains soft. Indeed, one-third of firms reported declines in their sales volumes over the past 12 months. Firms—particularly those linked to discretionary consumer spending—noted that high interest rates over the past year weighed on their sales.
However, businesses anticipate improved demand conditions ahead. Firms’ indicators of future sales (e.g., order books, advance bookings and sales inquiries) are better than they were one year ago when demand was weak. The balance of opinion is now slightly above its historical average, with the share of firms reporting improved indicators now notably larger than the share reporting deteriorated indicators (Chart 4, red line). Moreover, businesses think sales growth will strengthen over the coming year from a low level (Chart 4, blue bars). More firms than last quarter are seeing benefits from interest rate cuts, noting improved demand and rising consumer confidence. Businesses also attribute these improved outlooks to their own efforts, such as an increased focus on strategic pricing (e.g., discounts, promotions, etc.) and on offering affordable goods and services to stay competitive in an environment characterized by soft demand.
Chart 4: Firms expect sales growth to improve from last year’s low levels
Firms’ intentions to increase investment over the coming year have become more widespread and are well above their historical average (Chart 5). This partly reflects firms returning to previously delayed investment plans now that borrowing costs are lower and outlooks for demand are better. Despite more firms planning to expand investment, the overall magnitude of the increases is not extraordinary. Of the businesses expecting to increase their investment spending, nearly one-half—more than last quarter—see the increase as a small one. Uncertainty, particularly related to US trade policy, is holding back some firms’ plans for investment. At the same time, investment intentions are robust for firms in the energy sector (Box 1).
Chart 5: Intentions to increase investment have become more prevalent
Many firms have spare capacity, which is reducing pressure to expand
The share of firms reporting binding capacity constraints has declined further this quarter, reflecting the sustained impact of soft demand conditions (Chart 6, yellow line). And fewer businesses are experiencing shortages of labour that are holding back sales (Chart 6, green line). Labour shortages that are being felt are considerably less intense than one year ago due to recent weak sales and increased labour supply.
Chart 6: Most firms are not facing binding capacity constraints
With many firms not facing binding capacity constraints, overall hiring intentions remain soft (Chart 7). The share of businesses planning to add staff has risen slightly, but many of them are expecting only modest increases. These businesses mentioned that their hiring plans were contingent on how demand evolves for their products or services. Overall, a larger-than-normal share of firms plan to keep employment levels roughly flat over the coming year, with many feeling appropriately staffed for current and anticipated levels of demand. Notably, the share of businesses planning to reduce staff has not increased in recent quarters and is near its historical average. A small subset of firms mentioned needing to restructure their employment base going forward given new immigration policies.
Chart 7: Hiring intentions remain soft
Firms expect cost growth to soften
Firms expect growth in labour costs to continue to slow over the coming year (Chart 8, blue bars). This reflects easing labour market conditions and lower inflation. The average expected wage increase for the coming year continues to trend lower (Chart 8, black line) and remains only slightly higher than the pre-pandemic average. The share of firms planning normal-sized wage increases rose to 70%, continuing the upward trend since the second quarter of 2023 when it was only 15%. Firms also continue to expect slower growth in non-labour input prices (Chart 8, yellow bars), largely due to weaker price growth for non-commodity goods and services.
Chart 8: Firms continue to expect wage and cost growth to ease
Although firms expect growth in wages and input costs to slow further over the next 12 months, they anticipate their selling prices will grow at the same rate as over the past 12 months (Chart 9). Indeed, firms reported that improved demand conditions will allow them to pass through more of their previous cost increases and restore their margins. Nevertheless, competitive forces are expected to limit the extent to which selling prices can increase.
Chart 9: Firms expect selling price growth to stabilize
Inflation expectations are slightly higher than last quarter but remain at rates between 2.5% and 3% across all time horizons (Chart 10). Some firms mentioned potential US tariffs as affecting their inflation expectations—mostly anticipating an increase in inflationary pressures. Continued soft demand was noted as an offsetting factor, allowing growth in labour and other costs to ease. About three-quarters of businesses expect inflation to be within the Bank’s target range of 1% to 3% over the next two years (Chart 11). An increasing number of firms expect inflation to be in the lower end of the Bank’s target range; this is somewhat offset by an increasing number of firms expecting inflation to be above the target range.
Chart 10: Inflation expectations are slightly higher than last quarter
Chart 11: Most firms expect inflation to be between 1% and 3%
Box 1: Expanding export infrastructure is supporting the outlook for the oil and gas sector
Box 1: Expanding export infrastructure is supporting the outlook for the oil and gas sector
In November 2024, Bank of Canada staff held consultations in Calgary, Alberta with leaders from the oil and gas sector as well as industry experts. Participants included natural gas, conventional oil and oil sands producers. Results suggest that oil and gas production is expected to continue growing over the next one to two years. This outlook is supported by the start of commercial operations for the Trans Mountain Expansion (TMX) pipeline and the expected launch of Phase 1 of LNG Canada, a liquefied natural gas (LNG) export terminal in Kitimat, British Columbia, in mid‑2025.
Business sentiment in the sector remains robust. Oil producers expect their investment and production levels to rise in 2025 as the TMX pipeline further increases oil flow, allowing the sector to further expand exports. Firms highlighted the positive economic impact of improved access to global markets, with Canadian crude finally reaching China and other Asian countries. Moreover, firms mentioned that they now receive better prices for their products due to their access to a larger number of export markets.
Recently, the oil and gas sector has experienced price volatility and some uncertainty surrounding tariff policies of the new US administration. Nevertheless, firms generally expect the prices of West Texas Intermediate (WTI) and Western Canadian Select (WCS) to stay above firms’ production costs, with the WTI-WCS price differential remaining narrow at around US$12–US$14 per barrel in 2025. However, businesses anticipate that when export pipeline capacity in Western Canada approaches its limits over the next two to three years, the price differential might gradually widen again.
The launch of LNG Canada’s Phase 1 is also supporting the increase in natural gas producers’ capital expenditures over the coming year. Most firms expect Canadian producers of natural gas to quickly absorb all of the export terminal’s capacity. Access to global markets is expected to provide more stable prices for natural gas in Canada. Overall, robust global demand for LNG and the low domestic production cost of natural gas position Canada favourably in LNG export markets.
Announcements and quarterly reports from publicly traded oil and gas producers about their 2024–25 capital expenditures and production point to a roughly 4% increase in capital expenditure budgets and about a 5% rise in oil and gas production for 2025 (Chart 1-A). The positive outlook for capital expenditures is further supported by projections from the Canadian Association of Energy Contractors, which represents drilling and service rig companies. The association anticipates 6,604 wells will be drilled in Western Canada in 2025—a 7.3% increase over 2024.
The sector is also planning to invest significant resources in carbon capture and storage projects to reduce its greenhouse gas emissions. However, many firms raised concerns about the feasibility within the proposed timeline of the federal government's implementation of the carbon emissions cap and net-zero policy.
Survey results report opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.
The Bank of Canada’s Business Outlook Survey is conducted by the Bank’s regional office staff through interviews with the senior management of about 100 firms selected to reflect the composition of the gross domestic product of Canada’s business sector. 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 1,000 Canadian business leaders who respond to one of three short online questionnaires each month. 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).