Canadian Business Sentiment Improves, but Remains Weak Amid COVID-19 Uncertainty

Canadian Business Sentiment Improves, but Remains Weak Amid COVID-19 Uncertainty
A server at Mamma Martino's Restaurant serves customers after indoor dining restaurants, gyms, and cinemas re-open under Phase 3 rules from COVID-19 restrictions in Toronto, on July 31, 2020. (Reuters/Carlos Osorio)

OTTAWA—Business sentiment improved across Canada as COVID-19 restrictions were eased, a Bank of Canada survey showed on Monday, but sentiment remains weak with the pace of recovery expected to be slow and uneven amid the pandemic.

The survey of 100 firms took place between late August and early September, when COVID-19 cases were still relatively low in Canada. Now a second wave of new infections has led to targeted restrictions in certain hot spots.

The Bank of Canada's overall business outlook indicator improved slightly in the third quarter survey, though it remained negative and well below its historical average. A third of firms surveyed said they do not expect sales to return to pre-pandemic levels within the next 12 months.

"After many containment measures were lifted and business activity resumed over the summer months, firms now expect sales to increase from low levels," the Bank said. "There are indications the pace of the recovery will slow and be uneven across industries."

Firms also reported that their sales prospects are limited by weak demand and health guidelines, and said their investment and hiring plans remain modest due to elevated uncertainty.

While some companies said they are refilling positions after layoffs earlier in the pandemic, one-third said they expect their workforce to remain lower for at least the next 12-months or to never fully return.

Nearly half of firms surveyed reported that Canada's emergency wage subsidy had helped them with staffing. The program has cost the federal government $42.6 billion so far.

Inflation expectations rebounded from a deep plunge, though most businesses still anticipate it "will be in the lower half of the Bank of Canada's inflation-control target range."

Canada's September inflation data will be released on Wednesday with CPI common, a measure the central bank watches closely, expected to remain at 1.5 percent.

By Julie Gordon