Interest rates continue to curb demand
Indicators of demand remain soft. Sales growth over the past year has been sluggish, particularly for firms tied to discretionary consumption or residential real estate. When discussing weak demand, businesses often referred to customers’ financial situations and the recent economic slowdown in Canada. About three-quarters of firms said that interest rates are negatively affecting their business, often by reducing demand for their products and services. This is similar to results from recent quarters, and the impacts of interest rates are widespread across sectors.
Firms’ sales outlooks for the next 12 months suggest that economic activity will remain subdued. Specifically, firms’ indicators of future sales (e.g., order books, advance bookings, sales inquiries) are roughly unchanged from 12 months ago (Chart 4, red line), a weak result relative to the historical average. Further, survey results point to a continued period of slow economic growth, with firms expecting their future sales growth to be similar to that of the past 12 months (Chart 4, blue bars).