BoC: Business sentiment in Q1 softened even before concerns around COVID-19 intensified

The business sentiment in Canada in the first quarter of the year softened in most regions even before concerns over the COVID-19 intensified, the Bank of Canada's (BoC) latest Business Outlook Survey (BoS) showed on Monday. The BoC further noted that the confidence deteriorated most in energy-producing regions.

Key takeaways

"BoC BoS survey interviews were conducted before concerns around COVID-19 intensified; two smaller phone surveys were completed more recently to provide a picture of the impact of the COVID-19 shock and low oil prices on firms."

"BoC survey on COVID-19 shock reports a collapse in sales in accommodation, food services and recreation industries; non-food retailers reported a dramatic drop in foot traffic, scaling down operations, but some pivoting to less-developed lines."

"Separate BoC survey on COVID-19 shock shows grocery retailers and related transportation services note sales had reached unprecedented levels."

"Separate BoC survey on COVID-19 shock shows firms taking a wait-and-see approach on capital expenditures; almost all firms in tourism and food-service cutting back on renovations and purchases of machinery and equipment etc. To preserve cash."

"Separate BoC survey on oil price collapse shows the majority of firms view current oil price shock as worse than declines in 2008 or 2015; financing more difficult to obtain, many firms had been anticipating a bottoming-out rather than a negative shock."

"Separate BoC survey on oil price collapse shows most firms report major cuts to capital budgets, significant staffing reductions imminent, especially among oil-field service companies but most producers, expect few layoffs because already very lean."

"Regular BoC survey pre-COVID-19 shows firms planned modest increases in capital spending on machinery and equipment; hiring plans muted as firms in prairies signal reductions due to falling oil prices, but it-related firms intend to add staff."

"Regular BoC survey shows labor shortage intensity remains positive and near historical average; firms expect non-labor input prices to rise slightly faster, non-commodity inputs offset by falling energy prices; slight easing of credit conditions."

"Separate BoC Q1 survey of consumer expectations says consumer expectations for 1-year ahead inflation increased slightly in q1 to 2.5% from 2.2%, most respondents expect spending growth to surpass income growth."

Market reaction

The USD/CAD largely ignored these comments and was last seen trading at 1.4128, erasing 0.52% on a daily basis.