OIL GLOOM SPREADS ACROSS SECTORS
Downbeat sales expectations: BoC survey
• Canadian companies have lost some of their enthusiasm for future sales and investment because of the collapse in oil prices — and that sentiment is also weighing on hiring plans.
But a quarterly survey by the Bank of Canada shows there is still room for optimism, as the economic landscape in the United States improves and a low Canadian currency increases the competiveness of this country’s export products.
In its closely watched Business Outlook Survey, released Monday, the central bank said the drop in crude prices will “dampen the overall sales outlook of firms, weighing on investment and hiring intentions,” especially in resources-heavy provinces.
“Firms in the Prairies and in the energy supply chain continue to report being adversely affected by weaker oil prices,” the bank said, with “signs of spillovers” in other sectors and regions growing.
“Nevertheless, many businesses indicate that lower oil prices and a weaker currency support their business outlook, and the majority anticipate a positive impact from strong U.S. economic growth,” the bank said.
“On balance, past sales activity continued to improve, but businesses do not expect a material increase in sales growth over the next 12 months.”
The survey is based on views from 100 senior executives across Canada. The spring poll was conducted between Feb. 17 and March 12.
Since then, oil prices have remained around US$50 — about half the trading level of a year ago.
“The oil price slide impact is a little bit louder and a little bit worse,” said Douglas Porter, chief economist at BMO Capital Markets. “The survey also highlights the deepening shift in growth — such as it is — away from Western Canada toward manufacturing and exports in Central Canada.”
The central bank said the survey showed business plans to increase investment and employment “are more widespread among firms based in Central Canada and those in the services sector.”
Alberta has been hardest hit by the energy market slump, which has cut into corporate spending and employment levels. Provincial revenues from the oil patch have also dropped, as they have federally.
Aver y Shenfeld, c hi e f economist at CIBC World Markets, said the survey shows “businesses don’ t expect sales growth to accelerate or slow in the coming four quarters versus the prior four-quarter pace, with roughly the same number expecting a speed up — 40% — as a slowing down — 36%.”
“That’s not bad considering that the results including those feeling the energy sector softening, and that the past four quarters saw the best reading on sales acceleration since 2012,” he said.
“The level of business investment in machinery and equipment isn’t expected to grow much on balance.”
Bank of Canada governor Stephen Poloz recently characterized the effect of plunging oil on economic performance as “atrocious.”
That comment came after the central bank’s surprise interest rate cut — to 0.75% from 1% — in January, but before a Statistics Canada report on Canada’s gross domestic product showed a decline of 0.1% in January.
“All told, a further deterioration in business sentiment was broadly expected,” said Leslie Preston, at TD Economics. Still, “there is little in this report that would suggest a further easing by the Bank of Canada at its rate announcement next week.”