Surveys point to growth slowdown

The Bank of Canada’s fourth-quarter Business Outlook Survey revealed a sharp deterioration in firms’ expectations for future sales. In fact, the future sales balance dropped into negative territory for the first time since 2011. On past form, that seems consistent with annual GDP growth slowing from 2.2% in the third quarter to near zero in the coming quarters. Admittedly, other components of the survey painted a rosier picture, with firms’ investment intentions still consistent with a healthy pace of investment growth. But other surveys have also shown a loss of momentum in recent months, as the Markit manufacturing PMI declined to a two-year low in December. Softening surveys support our forecast for growth to be lower than the Bank expects this year. If we are right, then the Bank is unlikely to follow through with its pledge to raise interest rates further.