HEWC - Canadian business sentiment drops most since pandemic started BoC survey shows

Against a backdrop of rising interest rates and slowing demand, Canadian business sentiment has fallen the most since the Covid-19 pandemic started, the Bank of Canada's survey signaled on Monday.

Specifically, the BoC's business outlook gauge in Q3 dipped to 1.69 from 4.87 in the prior quarter and 5.88 at the peak in Q4 2021. While the latest figure remained in positive terrain, it's the worst deterioration since Q2 2020, when the indictor dropped to -6.32 from -0.81 in Q1 2020.

“Many firms expect slower sales growth as interest rates rise and demand growth shifts closer to pre-pandemic levels,” the report said.

Firms' short-term inflation expectations have eased during the quarter but remain above the central bank's 2% objective. Over 75% of firms expect inflation to stay higher than 3%.

The majority of firms expect a recession is likely to occur within the next year, as demand gets hampered by rising rates and higher prices. The BoC has already lifted its key rate by 300 basis points since the beginning of its tightening cycle in March. Its upcoming gathering is set to take hold on Oct. 26, where policymakers are anticipated to raise the benchmark rate by another 50 bps.

Related ETFs: iShares MSCI Canada ( NYSEARCA: EWC ), Franklin FTSE Canada ( NYSEARCA: FLCA ), and iShares Currency Hedged MSCI Canada ( NYSEARCA: HEWC ).

Previously, (Sep. 19) Loonie called a short at TD as Canada's debt issue prompts BoC to fall behind Fed .

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