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Even before a new trade deal was signed between Canada, Mexico and the U.S., Canadian business executives were optimistic about domestic and foreign sales growth for the next year, the Bank of Canada’s latest Business Outlook Survey says.

“Ongoing strength in both domestic and export demand as well as firms’ initiatives to innovate and reach new markets are backing the momentum,” says the survey, which polled senior management at 100 firms in August and September.

After an increase in the Q2 survey, the business outlook indicator dropped slightly in Q3 but remains “at almost record levels, consistent with widely held positive views,” the central bank says.

“Firms’ positive sales outlook is underpinned by a solid, broad-based improvement in recent sales indicators,” and those that sell to the U.S. expect to benefit from household demand and business investment across the border.

The survey also revealed some challenges for businesses, related to employment and regulation. Hiring intentions have receded, mainly in Quebec and in the Prairies, though they remain positive in all regions and sectors, the survey said. Intensifying labour shortages are resulting in capacity pressures, driving investment.

Further, executives forecast that inflation will remain in the upper half of the BoC’s target while their costs may rise due to tariffs. Regulation and taxes were cited as investment impediments, with respondents pointing to environmental approvals and U.S. trade policy affecting spending plans.

In the housing and housing-related sectors, the business outlook for the next 12 months is more “subdued” than in other areas, the BoC survey says.

In a Monday report, Scotiabank Economics vice-president and head of capital markets economics Derek Holt noted the “hawkish” message from Canadian businesses even before the new trade deal.

“A weak report would have been ignored on NAFTA concerns, but a strong report like this one is all the more amazing because it reflects opinions before businesses had any improved certainty toward the trade and investment regime,” he said.

A rate hike at the BoC’s next announcement on Oct. 24 should be a “slam dunk,” he said.

Benjamin Reitzes, Canadian rates and macro strategist at BMO, also calls for a rate hike based on the tone of the BoC survey. Its overall upbeat findings suggest “there’s more upside to our call for 2% GDP growth in the quarter,” he said in a Monday report.

With the “significant uncertainty” of trade with U.S. over, “business sentiment should improve further,” he said.

Lending conditions

In the BoC’s Senior Loan Officer Survey for the quarter, also released Monday, the central bank found mortgage and non-mortgage household lending conditions mostly unchanged.

Changes to mortgage underwriting rules introduced at the start of the year resulted “in tighter non-price conditions in previous quarters,” after lenders responded “by easing price conditions in the second quarter, in particular, by discounting variable-rate mortgages.” Some lenders partially unwound those discounts in Q3, the survey said.

Demand for high-ratio mortgages remained the same, the survey said, but increased for both low-ratio mortgages and home equity lines of credit, “as a result of broadly positive economic conditions.”

Overall business lending conditions eased slightly for the fourth quarter in a row. Broken down, the survey says, price and non-price lending conditions eased for corporate borrowers while the environment is the same for small business and commercial borrowers.

Read the Business Outlook Survey and Senior Loan Officer Survey.