CANADA DATA: Capex Plans Firm Despite Uncertainty But Excess Capacity Remains

In addition to inflation expectation components noted earlier, the BoC’s Business Outlook Survey pointed to some sequential improvement in demand expectations although excess capacity remains and the BOS indicator is still below average. The pick-up in capex intentions is notable to us considering “prevalent” uncertainty around the incoming Trump administration’s policies but it was in part catch-up of postponed plans. 

• “Overall business sentiment remains subdued, but firms are beginning to anticipate improvements in sales activity. Meanwhile, businesses expect growth in costs to continue to ease and growth in selling prices to stabilize.”
• “After a period of weak demand, firms expect their sales growth to improve over the coming year. This expectation is largely driven by recent interest rate reductions and the anticipation of further cuts ahead.”
• “With lower financing costs and improving demand outlooks, intentions to increase investment have become more widespread among firms. Part of this is a resumption of previous plans that were postponed.”
• That’s despite “Uncertainty about the effects of the new US administration is prevalent, with firms commonly anticipating higher input costs due to trade tensions” but the fact that this is partly catch-up takes some of its gloss off.
• “Most businesses reported having some spare capacity. Because of this, hiring plans remain modest. Binding labour shortages are not widespread, and most firms describe the availability of outside labour as improved compared with one year ago.”
• With signs of improvement in this report at least partly conditional on further rate cuts ahead, Desjardins, for example, continue to see a case for their baseline of rates going to 2.00% in early 2026.