High interest rates, inflation slow business growth, Bank of Canada survey finds

financialpost.com:

Despite increasing expectations that interest rates have peaked, many Canadian businesses experienced weaker growth in the fourth quarter and blamed factors including their customers’ financial situations and the impacts of higher rates and inflation, according to the Bank of Canada’s latest business outlook survey.

“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,” according to the report, which was published Jan. 15.

“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.”

There is also concern a swath of upcoming mortgage renewals will further reduce people’s disposable income. 

Growth was particularly muted in construction and real estate, with firms in these sectors saying some projects had been put on hold over the past 12 months due to high interest rates causing demand to decline and financing costs to rise, high construction costs and general economic uncertainty.

Still, there are some signs of optimism, with many firms expecting sales to improve over the course of 2024 if interest rates come down and sales volumes stabilize after declines or weak growth.

“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,” the report said. “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.”

Higher interest rates resulted in a quarter of Canadian companies facing higher borrowing costs