Conference Board: economy could ‘ stop bleeding’ soon
Canadian businesses appear surprisingly upbeat these days, optimistic that the worst of the oil shock- driven economic slump is likely behind them and the “bleeding” will stop soon.
“Critically, the pessimism regarding the general economy has mostly subsided,” the Conference Board of Canada said Monday. “The return in confidence is translating into stronger investment intentions.”
The Conference Board’s closely monitored index of business confidence rebounded in the second quarter of 2015, rising to a reading of 105.6, after two consecutive quarterly declines that pushed the index to a six- year low of 86.5.
The sudden optimism comes after what can only be described as a dismal year of recession- level economic contractions — predominantly due to the global collapse in oil prices — and meagre employment creation and weak exports.
The deep impact on growth has already led to two cuts in the Bank of Canada’s trendsetting interest rate in 2015. Stephen Poloz, the central bank governor, could move the current 0.25- per- cent lending level even lower this year if the economy doesn’t begin to grow again later this year. But that may not be necessary. Conference Board economist Fares Bounajm said the confidence index is “forward looking ... ( so) it doesn’t really tell you much about what has happened in the past, but what we expect to see in the future.”
“The previous six months were really bad for the economy. The fact that we’re seeing an increase in business confidence suggests that at least we’re stabilizing, that the bleeding will stop,” Bounajm said in an interview.
“Historically, our business confidence index has been highly correlated with GDP growth. And in the past two quarters, our business confidence plummeted twice in a row and we also saw GDP growth declining during that period,” he said.
“With a rebound this quarter ( in the index), it may suggest that the worst is over and the economy will stop contracting ... and will probably start to expand in the second half of the year.”
In Monday’s confidence report, the Conference Board said its survey of 1,500 senior Canadian business leaders showed 11.3 per cent of business leaders still expected overall economic conditions to deteriorate over the next six months — but that’s down from a three- andahalf- year high of 29.5 earlier this year.
Those anticipating an improvement in economic conditions rose 4.4 percentage points to 22.6 per cent in the latest poll.
Stronger confidence should translate into increased investment, as well, with 56.5 per cent of companies indicating they plan to spend more on buildings, machinery and equipment — up from 47.7 per cent in the previous survey.
Part of those increased spending plans is reflected in the share of companies concerned about a drop in their finances. Just 4.8 per cent of companies in the current survey expected their finances to worsen, down from a six- year high of 21.6 per cent in the previous poll.
There were temporary factors in the U. S. that affected Canada’s overall GDP — among them, extremely harsh winter weather and labour disruptions at U. S. West Coast port facilities.
“All these factors really hurt exports in the first half of the year. But, luckily, a lot of them were temporary,” said Bounajm, at the Conference Board.
“So, we do expect both the U. S. economy to rebound in the second half and ( Canadian) exports as well.”
The fact that we’re seeing an increase in business confidence suggests that at least we’re stabilizing.