Most Canadian businesses expect a mild recession over the next year because higher interest rates are curbing investment plans and consumer spending, while at the same time more see inflation staying high for longer, the Bank of Canada said on Monday.
Business sentiment continued to weaken in the fourth quarter and expectations for slower sales growth increased for a fourth consecutive quarter, according to a quarterly survey. Some two-thirds of firms expect a recession over the next 12 months, with 90% of those expecting it to be mild.
"However, still-elevated inflation expectations will keep the Bank on alert. This survey is consistent with our call of a 25 basis-point rate hike at next week’s meeting, after which we anticipate the Bank will hold interest rates steady through the remainder of 2023," she said. In his most recent remarks, Bank of Canada Governor Tiff Macklem cited the risk of sticky - or persistent - inflation, which might require "much higher" rates.
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