(Ottawa) The Bank of Canada says business and consumer confidence improved during the first quarter of the year, even as high interest rates continue to hold back the economy.
The central bank released its business outlook and consumer expectations surveys on Monday, which showed increased optimism as people expect interest rates to fall.
Although companies still reported weak demand, economic indicators, sales prospects and hiring intentions improved after several quarters of decline.
“After a period of weak sales growth, companies expect sales to improve due to population growth, efforts to enter new markets or develop new products, and expectations of a decline interest rates over the next 12 months,” the Bank of Canada said.
Meanwhile, nearly two-thirds of Canadian consumers are reducing or postponing their spending due to inflation and high interest rates. Still, consumers are becoming less pessimistic about the direction of the economy as they expect interest rates to fall.
“Although weak, consumer confidence improved this quarter as people expected interest rates to fall,” the Bank of Canada said. As a result, consumers are less pessimistic about the future of the economy and their financial situation, and fewer believe they will have to reduce or further delay their spending. »
Workers also remain optimistic about the job market and expect strong wage growth, despite signs of softening in the labor market.
After a historic acceleration in inflation after the pandemic, the Bank of Canada responded with several increases bringing its key interest rate target to 5% – the highest level since 2001.
Forecasters generally expect the central bank to begin lowering its key rate around the middle of the year, as inflation continues to slow and economic growth remains weak.
Canada’s annual inflation fell to 2.8% in February.
Central bank surveys have found that while businesses’ expectations for short-term inflation continue to decline, consumers’ expectations have remained essentially unchanged.
According to the Bank of Canada, consumers link their perception of slowing inflation to their own experience of price changes for frequently purchased items, such as food and gasoline.
The Bank of Canada is expected to make its next interest rate announcement on April 10.