The Business Outlook Survey painted a mixed picture ahead of the Bank of Canada’s October monetary policy decision. The Future Sales Indicator (FSI) – which includes firms’ expectations for future sales as well as their assessment of order books, advance bookings and other qualitative factors – is consistent with GDP growth slowing to 1.0%. Despite signs of weaker growth, firms reported that they faced increased capacity constraints in relation to both equipment and labour. That would normally be consistent with inflation and wage growth accelerating. While these opposing signals will keep the Bank on hold this month, we think that further evidence of slower GDP growth will ultimately prompt the Bank to loosen policy. We expect the Bank to cut the policy rate twice, starting in December and taking it down to 1.25% in early 2020.
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