Business sentiment reflects economic resilience: BoC survey
TORONTO The Bank of Canada found a slight improvement in business sentiment in Canada, despite fears of rising global trade tensions and a potential U.S. recession, according to its Business Outlook Survey released on Tuesday.
The seasonal survey is compiled from interviews with senior management at about 100 key companies, and provides a window into how the central bank is interpreting economic data.
The latest survey led several economists to conclude that the Bank of Canada will not change interest rates later this month.
Still, the survey also suggested that Canada’s regions are experiencing current economic conditions very differently. While the economy appears to be humming in Ontario, Quebec and British Columbia, with businesses confident about sales growth, hiring plans and investment intentions, the picture is markedly less positive in the Prairies as the energy sector struggles.
“It was kind of surprisingly positive, or maybe surprisingly not all that negative,” said Nathan Janzen, a senior economist with RBC. “I think if you look at all these indicators, they’re pretty constructive for the Canadian outlook. The weakness was the energy sector, and that’s not that surprising, but it is surprising to see the rest of country be so resilient.”
Given the rise in trade tensions since the time of the last survey in June, Jaznen said, the expectation was for businesses to pull back on investment decisions.
But investment intentions actually trended higher, with a net 28 per cent of respondents indicating plans to increase spending, up from 20 per cent.
Brian DePratto, a senior economist at TD Economics, noted the sales outlook remains unchanged with a net of 23 per cent of respondents predicting accelerating growth over the next 12 months.
Meanwhile, the job market remains tight in Central Canada and B.C., but not the Prairie Provinces where a soft energy market persists, he wrote.
“This isn’t the kind of report that makes you think, ‘oh things are really going to take off,’ but it’s not the kind of report that makes you think, ‘oh no, run for the hills,’” DePratto said.
Rather, the report suggests “a solidly middle-of-the-road economic performance,” he wrote in a note.
On interest rates, both DePratto and Janzen predicted the Bank of Canada would not cut rates at its next scheduled announcement on Oct. 30.
Avery Shenfield, chief economist of CIBC Capital Markets, agreed but said the picture is mixed. The economy is growing somewhere close to its non-inflationary potential in the third quarter, but sentiment is only slightly above its historic average as a result of weakness in the Prairies.
“The central bank’s use of the word “healthy” to describe hiring and capital spending intentions outside the energy provinces suggests it’s not inclined to cut rates yet,” Shenfield said in an email.
But he added that the results were “not very robust” either.
The Bank of Canada also released its Senior Loan Officer Survey on Tuesday, which also came out mixed, with mortgage lending conditions easing but non-mortgage conditions tightening.
It also found business lending conditions remained for the most part unchanged, with things tighter in the energy-dependent provinces than the rest of the country. Demand for credit remained unchanged.
DePratto said that while the reports provide an overall positive picture, there are mounting risks that are largely “beyond our borders,” such as U.S.-China trade tensions and the possibility that a U.S. recession would have spillover consequences in Canada.
“Until and unless the domestic data begins to meaningfully turn negative, the Bank (of Canada) will be comfortable to sit on the sidelines,” DePratto wrote, “even as its advanced-economy peers continue to ease their monetary policies.”