OTTAWA -- Fewer consumers and businesses are expecting a recession compared to last quarter, according to two surveys released by the Bank of Canada on Friday.
One third of firms are preparing for a recession compared to one half at the beginning of the year, and 50 per cent of consumers are now expecting a recession compared to 58 per cent at the beginning of 2023.
think the worst is behind them and have a better outlook on the future of the economy, with the expectation that interest rates will drop 12 months from now.
In the short-term, the cost of living remains the number one key issue for consumers. The cost of groceries remains a concern and the value of financial assets, such as pension funds, has seen a decline.
Variable rate mortgage holders are feeling the most impact from elevated interest rates and are more likely to cut back on spending.
鈥淚nterest on our variable-rate mortgage went from 2.6 per cent to 6 per cent,鈥� one respondent from the Canadian Survey of Consumer Expectations said. 鈥淭his is a huge increase. We are not able to go to restaurants anymore or go on vacations because we need to be able to pay our mortgage.鈥�
about slowing demand, with one fifth of them now expecting an outright decline in sales. This is particularly felt by firms who rely on consumer discretionary spending which has been hit by higher interest rates.
However, many businesses are also optimistic about domestic demand moving forward, pointing to fewer concerns about a recession and less uncertainty around the future path of interest rates, according to the central bank. Despite this, wage expectations from consumers remain high because of labour churn which puts upward pressure on salaries.
Consumers remain pessimistic about inflation, with 44 per cent expecting inflation to remain elevated above 5 per cent over the next two years. In the business sector, 30 per cent of firms anticipate inflation will decline to between 2 to 3 per cent over the next two years. The Consumer Price Index stood at 3.4 per cent in May down from 4.4 per cent in April, according to Statistics Canada.
Despite this improvement, around 16 per cent of businesses expect inflation to persist into 2028 and beyond, with firms pointing to high government spending and strong demand in housing as the main causes.
Businesses are also less concerned about labour shortages compared to a year ago, thanks to increased immigration and with less firms planning to grow their staffing levels. For the first time since before the COVID-19 pandemic, firms expect slower wage growth over the next 12 months and anticipate wage growth to slow more by 2025-26.
There are signs that pressures in the labour market are easing. Statistics Canada reported job vacancies have dropped by 8.4 per cent between January and April of this year.
