Business leaders’ mood improved but still subdued: Bank of Canada
OTTAWA — The mood among Canadian business leaders is “subdued overall,” as the drag from the oil-price shock continues to overshadow steady foreign demand that has been fuelled by a weak dollar.
“Expectations for future sales growth remain positive, with clear signs of support from U.S. demand,” the Bank of Canada said Friday in its spring Business Outlook Survey.
“Yet, the outlook for domestic sales is guarded in light of sluggish demand and the ongoing adjustment to lower oil prices.”
At the same time, the number of businesses that plan to invest more and hire additional staff increased “but remain modest,” with the survey indicating opinion is “sharply split among firms.”
Their views “continue to diverge sharply, depending on whether they are tied to the commodity sector and on their exposure to foreign demand,” the bank said.
On the whole, however, the results support the view that business sentiment since the previous quarterly poll has “improved but remains subdued overall.”
The spring survey of about 100 Canadian companies was conducted by the central bank’s regional offices between Feb. 11 and March 7.
Not surprisingly, companies with links to the energy sector “are curtailing investment expenditures as they continue to adapt to challenging conditions, while firms facing foreign demand, particularly exporters not tied to commodities, indicate stronger intentions.”
Meanwhile, the survey also showed production capacity pressures among Canadian firms have edged up, although few expect significant problems meeting any unexpected increases in demand for their products.
And while many companies believe their costs will rise “at a slightly greater rate,” they expect inflation to move only marginally higher in the coming months. Many also anticipate that minor upward price pressure will remain limited to the lower end of the Bank of Canada’s target range of between one and three per cent.
Nick Exarhos, at CIBC Economics, said that “all told, not a report to cheer for, but one that reverses the prior quarter’s gloominess, and leaves room for optimism on the quarters ahead.”
In a separate spring survey of senior loan officers across Canada, also released Friday, the central bank said business lending also appears to have declined.
Demand for credit by businesses, however, was basically unchanged between January and March, with corporate borrowing increasing, while demand eased among small businesses and commercial operators.
“Tightening in lending conditions was mainly for corporate borrowers and was concentrated in the oil and gas sector,” the bank said.
Even so, there are signs of a possible sustained turnaround in the Canadian economy.
On Thursday, Statistics Canada said gross domestic product in January grew by 0.6 per cent, the fastest pace in almost three years.
That strong showing, when combined with a string of three monthly gains at the end of 2015, points to a much better advance in gross domestic product for the first quarter of this year.
Many economists have now adjusted their meagre forecasts of around one per cent GDP growth between January and March to more than three per cent.
The economy’s January performance — along with the Liberal government’s stimulus package release in the federal budget on March 22 — will likely push back any thoughts of lower interest rates from the Bank of Canada.