Ahead of the BoC’s first interest rate decision of 2023 next week, the closely-watched Business Outlook Survey was a mixed bag of information including deteriorating growth outlook, moderating but still-elevated inflation expectations and easing capacity pressures. We continue to expect a 25 basis point increase to the overnight rate on January 25th, but a pause is not entirely off the table given the relatively dovish undertone from today’s survey. 

Higher interest rates from BoC hikes to-date are already having an impact on Canadian businesses’ outlooks. Most businesses surveyed expect Canada to be heading towards a (mild) recession within the next year, and sales growth to slow significantly.