Despite a slightly lower summary indicator, the Bank of Canada’s Q1 Business Outlook Survey revealed that Canadian firms reported generally positive sentiment. Brian DePratto, Senior Economist, TD Bank, talks to Sara D’Elia about how to assess the report and what it could mean for the BoC rate decision next week. Click here for the full TD Economics report.
We just received the Q1 Bank of Canada Business Outlook Survey. And while the summary indicator dropped, my guest says it's still a surprisingly solid report. Joining me to explain is Brian Depratto from TD Economics. Thanks for being here.
Happy to be here, Sara.
So to kick things off, I want to ask you, give us a little bit of an overview in terms of what you heard today.
You know, you touched off a little bit, in terms of we saw that summary measure down a hair, but still actually above the level we saw in 2017, which was obviously a very strong year. And that's really a theme that goes through the whole report.
You look at the sales outlook. Firms are positive there, and more positive than they were in the last one. Investment intentions, same story. Hiring, same story. So you know, very surprising, in terms of the strength, particularly given, you know, this is a question that asks relative to last year, relative to 2017. It's just a very solid, positive report.
I want to talk a little bit about the data here. On the inflation front, expectations went up a bit. And we're about a week away from the Bank of Canada's next rate decision. How do you think they're going to interpret this?
You know, I think it's going to play in, in terms of the speed of movement. We know-- they made it clear they're going to hike again-- maybe not telling us when. That'd be nice. But when you look at the measures here, we did see an uptick. The bulk of firms now expecting inflation in the 2% to 3% range. That's the top half of the bank's control target. They have 2% target, but they're happy around that a little bit.
But I don't think this is something that's going to make them move right away. Inflation already is above 2%. It's not surprising to see firms now expecting that to continue. And certainly, there's a lot of moving pieces going into that decision. So maybe we see something a little bit earlier in the summer, but I think for next week, it's likely to be a hold, and a whole lot of communication from the bank about just what they see as the year plays out.
One thing a lot of people have questions about, in terms of the Bank of Canada, is trade. And I know that story is developing almost daily. But how do you think they're going to assess that situation for us?
You know, it's a key one, and we know it's something Governor Poloz is really focused on. And it's also part of the reason that I think myself and others were a little surprised by this report, because we're seeing all this strength at a time where we've had extreme uncertainty around NAFTA, protectionism around steel and aluminum, all these headlines coming seemingly every day. And we're still getting this positive sentiment.
So you know, I think from that perspective, it's certainly-- the Bank of Canada will be happy to see this kind of positivity there, despite all the headwinds, which, we still get some of that in the report-- the firm's very worried. But you don't see it in terms of their planning.
And to close things off, I want to ask you about something called the Senior Loan Officer Survey. It's the first time household credit was included. What's your take on that?
Oh, that's a really interesting one, because normally, this is a little bit of the other report. You put a line in and it doesn't get as much attention. But right now, with everything happening in housing markets, you're going to be seeing some very interesting nuggets there.
So the Bank of Canada is reporting that, in terms of the quarter that was, it's a bit of a mixed bag-- some lenders saying they saw a pull forward of activity, others saying just a softening overall. And what everyone is saying, though, is that looking at the quarter ahead, so basically the quarter we're in now, that everyone is expecting more of a slowing in terms of mortgage lending, home equity lending, that sort of thing. So I think the message there is the adjustment in housing markets may not quite be over yet.
Brian, thanks very much. You've given us a lot to think about in terms of about 100 Canadian firms-- what they think on credit, data, and what it could mean for the Bank of Canada.
It is a small survey, but it is one they like. Thanks for having me.