By Promit Mukherjee and David Ljunggren
OTTAWA, Jan 19 (Reuters) - Canadian business sentiment remains subdued amid trade tensions with the United States, and firms only expect modest sales growth in the year ahead, a Bank of Canada fourth quarter survey showed on Monday.
The quarterly business outlook survey also showed that 21% of firms plan to cut workers in the year ahead, the highest level since the 22% seen in the second quarter of 2016.
The data are closely watched by the Bank of Canada and economists to gauge what Canadian firms expect in terms of inflation, sales and hiring.
The business outlook indicator, a summary of business activity, prices and costs, and capacity, rose to -1.78 from -2.27 in the third quarter.
"Firms report that sales growth has been weak over the past year largely due to the economic effects of trade tensions. They expect sales growth to improve slightly going forward," said the outlook.
The share of firms planning or budgeting for a recession in Canada over the next 12 months has eased from 33% to 22%.
But despite a slightly improved outlook than the previous quarter, companies are cautious about the future, especially due to continued uncertainty arounf U.S. trade policy.
Most firms expect inflation to hover at around 3% over the next two years.
"The pass-through of tariff-related costs is no longer putting upward pressure on firms' pricing decisions," the survey noted.
The impact of U.S. tariffs on Canada's automotive, steel, aluminum and lumber have hit these sectors hard, but there has been limited evidence of a spillover effect.
A separate survey by the central bank on consumer expectations showed Canadians are worried about their jobs and are concerned that they might miss debt payments.
Expectations for near-term inflation remain higher than they were before the pandemic but long-term inflation expectations eased below pre-pandemic levels.
The survey was conducted between Nov 6 and November 26.
((Reuters Ottawa bureau))
Keywords: CANADA CENBANK/
