Canadian firms more upbeat as exports rise
Outlook on investment cautious, expansion plans on back burner
— Canadian businesses are warming to the prospect of increased sales — export-driven, perhaps, more than domestic — but are keeping major expansion plans on the back burner for now.
Companies remain cautious in investment and hiring plans, though inflation is expected to remain tame and the “lagged effects” of a weaker Canadian dollar and a stronger U.S. economy should support sales activity, according to a snapshot of business sentiment.
The Bank of Canada, in its quarterly Business Outlook Survey released Monday, said there are “some encouraging signs for the economic outlook, although lingering uncertainty amid intense competition still hinders the pace of growth.”
The survey of 100 major Canadian firms suggests that while many saw a “more modest improvement” in sales over the past 12 months, “expectations for future sales growth remain positive, and there are indications that business sentiment regarding exports is gradually firming,” the central bank said.
Canadian companies selling to the domestic market “remain hopeful that sales growth will improve, owing in part to their efforts to increase market share. Overall, however, competitive conditions remain challenging, and many firms have yet to see signs of a notable and sustained strengthening in demand,” the bank said.
“Among firms with international sales, recent indicators of future sales momentum continue to improve compared with a year ago,” thanks in good part to a strengthening U.S. economy and “the lagged effects of the depreciation of the Canadian dollar,” according to findings of the survey conducted between May 20 and June 12.
Stephen Poloz, the Bank of Canada governor, has been using the power of persuasion to nudge business leaders into spending more on expanding their markets.
Poloz, the former president of Export Development Canada, the federal credit agency, insists — as did his predecessor, Mark Carney — that growing the post-recession economy requires a significant rotation from heavily indebted households to business-focused spending.
Monday’s survey results suggest he has had limited success.
“Investment in machinery and equipment remains firmly positive, although investment plans are tied primarily to upgrading or replacing existing equipment over the next 12 months,” the bank said.