Canadian business sentiment has fallen to its lowest level since the 2008-09 recession as sales slow and uncertainty about future growth remains elevated, according to a survey of executives released today by the Bank of Canada.

The Ottawa-based central bank polled businesses between May 12 and June 5 to gauge sentiment during the pandemic. The results show that even as provinces begin to reopen their economies, many businesses are still struggling with weak demand. Companies reported growing slack in capacity, easing price pressures and collapsing forward-sales expectations.

Results “suggest that business sentiment is strongly negative in all regions and sectors due to impacts from the COVID‑19 pandemic and the drop in oil prices,” the Bank of Canada said in a summary of its findings.

The composite gauge of sentiment declined to -7 which is the lowest reading since the financial crisis. Even though businesses have experienced a sharp drop in sentiment from the pandemic, many expect a recovery within the next 12 months. About half of firms anticipate that their sales will recover to pre-pandemic levels within the year.

Despite the plunge in sentiment, firms are overall less pessimistic than during the financial crisis. That’s due in part to government support buffering the economic fallout and the expectation for a fairly quick rebound in operations, according to the survey.

Since the survey was completed, provinces across Canada have moved forward with their reopening plans. In particular, the countries two largest provinces -- Ontario and Quebec -- have begun to allow more businesses to operate. This could result in an improvement in sentiment moving forward.

Still, “forward-looking sales indicators have collapsed” on expected weakness in domestic and foreign demand, the central bank said.

Key Insights

• Almost half of all Canadian businesses reported a decline in sales in the past 12 months because of the impact from COVID-19, lower energy prices and heightened uncertainty. Businesses continue to expect weak demand in the future with more firms expecting lower future sales growth in the next year.

• While millions of jobs were lost in March and April due to the pandemic-induced shutdowns, jobs have started to come back and the results of the survey reinforce the view that employers are looking to rehire.

• A majority of firms that recently laid off workers have plans to refill at least some of the positions in the next 12 months. However, many firms do not intend to increase their workforce partly due to weak expectations of future sales.

• More than half of firms expect their sales and employment levels to be near pre-pandemic levels within a year. On the flip side, just under half of businesses expect at most a partial recovery, or that their sales path is too uncertain to predict over the next year.

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• “Firms reported that, while capacity could resume quickly as the economy reopens and containment measures are lifted, the recovery in demand is expected to be more gradual.”

• The fiscal support from the federal government has helped buffer the drop in business sentiment; “Credit conditions have tightened significantly, but government measures are a helpful offset.”

• Half of exporters expect sales abroad to decrease over the next 12 months.

• Firms signalled a significant decrease in capital spending over the next 12 months, with the balance of opinion on investment intentions in machinery and equipment falling to a near-record low.

• The number of firms that reported they would have difficulties meeting an unexpected increase in demand has fallen sharply.

• The share of businesses reporting that major labour shortages has declined significantly, suggesting a “broad-based increase in labour market slack”

• Firms’ inflation expectations declined significantly to a near-record low.