Philip Cross says Canada is still wrestling with stagflation, the mix of slow growth and persistent inflation that erodes purchasing power and muddies decisions. He argues the next clear read on business appetite to spend comes when the Bank of Canada releases its Business Outlook Survey on January 19.
The survey tracks investment plans and hiring by interviewing leaders across about 100 firms. Cross frames it as a near‑term test of economic policy under Ottawa’s new direction. He is focused on whether private capital, not just public megaprojects, starts to move. That is the pivot that would lift productivity.
Investment test looms in January
Cross links the turning point to how executives answer the Bank’s questionnaire. “A major test of Mark Carney’s overall economic strategy will be investment intentions for 2026,” said Philip Cross.
The Bank has set the Business Outlook Survey for January 19, which makes it the first post‑budget signal on whether firms plan to add capacity and equipment, or hold back in another cautious year.
Ottawa’s plan includes faster approvals for large builds, but Cross asks if that spills over into sectors without direct subsidies. He notes the lift in capital outlays since 2023 has been concentrated in electric utilities and urban transit. He adds that real, inflation‑adjusted investment has slipped, even as headline budget lines rose.
Cross points to energy and mining as a litmus test. Output is up where prices are firm, yet long‑cycle spending has lagged. He highlights that producers raised volumes in oil, gas and metals, but have not committed to bigger project pipelines.
That gap matters for productivity and export capacity. If the January survey shows stronger plans across resource supply chains, confidence could improve. If it does not, the growth outlook stays soft.
Rates steady, market tone firmer
Monetary policy is likely to stay in watch mode into year end. The Bank of Canada lowered its policy rate to 2.25 percent on October 29, and signalled cuts were done for now, keeping the focus on inflation trends and business conditions.
Markets will parse the January survey alongside the Bank’s fixed announcement dates, since investment plans and price pressures inform the path for rates. A clearer pickup in private capital spending would point to firmer demand, while weak plans would argue for patience. Cross’s stagflation warning rests on prices that have cooled but not fully normalized.
“Meanwhile, core inflation remains stubbornly above the Bank of Canada’s two percent target,” wrote Philip Cross.
The Bank’s recent communications describe underlying inflation near the mid‑twos, with total CPI hovering around target. That mix, slower real growth and sticky underlying prices, keeps managers cautious. It also narrows room for easier policy unless momentum fades again.
Bay Street will watch three signals into January. The Business Outlook Survey on January 19 will show whether firms intend to step up spending across 2026. The Bank’s policy rate at 2.25 percent anchors funding costs and the credit backdrop for deals and capex.
Trading has leaned constructive into bank earnings season and firmer crude, but durable leadership depends on business investment broadening beyond state‑led projects. That is the hinge Cross wants answered, and soon.
