© Reuters. FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie/File Photo
By Steve Scherer and David Ljunggren
OTTAWA, April 3 (Reuters) – About half of Canadian businesses see a mild recession over the next year, the Bank of Canada said on Monday in a first quarter survey, fewer than in the fourth quarter, and most are bracing for inflation to stay above 2% until at least 2025.
In the fourth quarter, some two-thirds of respondents said they expected a recession was looming. Some 79% of firms see inflation staying above 3% for the next two years, down from 84% in the fourth quarter.
Overall business sentiment dropped a notch in the first quarter from the fourth, to 35% from 36%. It was 60% in the second quarter of last year.
The survey showed 59% of firms that were surveyed expected inflation to stay well above 2% until at least 2025.
Over the past year, the bank raised rates eight times in a row by a total of 425 basis points to tame inflation, which peaked at an annualized rate of 8.1% last year and slowed to 5.2% in February.
The Bank of Canada left its key overnight interest rate on hold at the 15-year high of 4.50% in March, and repeated that it would pause further rate increases if inflation came down in line with its forecasts, reaching its 2% target next year.
The latest business survey largely backs up data showing the economy slowing, though Statistics Canada last week said gross domestic product was stronger than expected in January and would expand again in February.
Canada’s labor force has also remained strong, and the average size of planned wage increases remains above its historical average, the survey showed. But the survey also said the labor shortage intensity indicator in negative territory for the first time in two years.
The latest survey was conducted before the failures of U.S. lenders Silicon Valley Bank and Signature Bank (OTC:), followed by Credit Suisse’s rescue, created concern that banking stress to trigger a credit crunch.
An online business survey also released on Monday “suggest that business sentiment has not changed much” since the bank failures, the Bank of Canada said.
Around 37.7% of consumers also expect “a moderate decline” in the economy and 20.3% expect a “significant decline”, according to a separate quarterly survey.
Consumer expectations for inflation eased. They see 6.03% average over next year, compared with the previous survey that foresaw 7.18% annual inflation.