Roughly three-quarters of firms said they are being negatively impacted by higher interest rates. These firms have more negative sales outlooks as well as weaker intentions to hire and invest in the next 12 months than other firms.
The near-term outlook for sales remains subdued. Indicators of future sales (e.g., order books, advance bookings, sales inquiries) have, on balance, deteriorated compared with 12 months ago (Chart 6, red line). Firms tied to consumer spending have notably weak outlooks for the next 12 months. These businesses mentioned that customers are:
- buying cheaper goods instead of costlier options
- purchasing in bulk
- looking for discounts to stretch their dollar
Some firms also expressed concern about upcoming mortgage renewals further reducing people’s disposable income. Indeed, the Canadian Survey of Consumer Expectations—Fourth Quarter of 2023 finds that homeowners set to renew their mortgages plan to cut spending to lessen the impacts of higher payments.
At the same time, businesses do show some signs of optimism. Overall, firms expect their sales growth to improve in 2024 (Chart 6, blue bars). This partly reflects a stabilization of sales volumes after weak growth—or outright declines—over the past year. 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. 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. In addition, firms that are not negatively affected by higher interest rates generally expect robust sales growth in the coming 12 months.