Bank of Canada survey finds business sentiment is 'strongly negative'

By Kelsey Johnson and Julie Gordon

OTTAWA (Reuters) - Business sentiment in Canada is "strongly negative" even as coronavirus restrictions have eased, though roughly half the companies surveyed expect their sales to recover to pre-pandemic levels within 12 months, a Bank of Canada survey showed on Monday.

The widespread negative sentiment caused by the coronavirus shutdown and the drop in oil prices led the Bank of Canada's business outlook indicator to plunge sharply, nearing the low experienced during the 2007-09 global financial crisis.

"Softer sales expectations are widespread across all regions and sectors, with firms often expressing a high degree of uncertainty about consumer behavior and future demand," the central bank said.

Weakness was most prevalent among companies in tourism, finance and real estate industries, along with those linked to energy. However, many businesses surveyed expect the weakness in their sales to be temporary, the Bank said.

"Half of firms anticipate that their sales will mostly recover within the next year as pandemic-related impacts recede," the Bank said.

Reports of capacity pressure and labor shortages have fallen significantly, while overall inflation expectations are down considerably on weak demand related to the pandemic. Still, the majority of companies expect inflation to be within the Bank's target range of 1% to 3%.

Hiring plans remain muted, with a quarter of companies surveyed planning to refill some positions, the Bank said. Canada's June employment numbers will be released on Friday.

The Bank of Canada slashed its key interest rate three times in March to 0.25. Its next interest rate release is set for mid-July.

The Canadian dollar <CAD=> was trading nearly unchanged at 1.3542 to the greenback, or 73.84 U.S. cents.

The Bank of Canada said it surveyed about 100 companies between May 12 and June 5, as part of its first regular survey since concerns around the coronavirus pandemic intensified.

(Additional reporting by Fergal Smith in Toronto; Editing by Bill Berkrot)