Central bank poll senses modest investment pickup

OTTAWA — The Bank of Canada says it’s detecting early signs of a “modest” pickup in corporate investment over the near term, even amid considerable uncertainty surrounding the U.S. economic agenda.

In its first business outlook survey since President Donald Trump was inaugurated, the central bank said on Monday that signals of a recovery in business investment are starting to emerge after a two-year period of weakness triggered by the oil-price shock.

“Although many firms expect additional spending to be modest, intentions to increase investment have become more widespread, driven by strengthening demand,” the bank said in the report that accompanied its survey of about 100 executives.

The findings indicated a greater percentage of Canadian firms surveyed were more optimistic about future sales growth than they were in January, even though many hadn’t seen their sales expand for nearly two years. Hiring intentions remained positive but little changed, the report said.

The results, taken from surveys conducted between mid-February and early March, follow other recent reports that showed encouraging gains in Canadian economic growth, trade and jobs.

However, the survey did find that when it came to exports, many companies had concerns about the impact of possible Trump policies. They worried about the prospect of protectionist measures and plans to slash U.S. corporate taxes, which many Canadian companies say could hurt competitiveness.

“Firms remain wary in an environment of elevated uncertainty,” the bank’s report said.

“Although to date only a few firms have seen concrete effects, several see negative risks.”

The poll also found that some of the firms surveyed saw benefits from the U.S. — with the approval of the Keystone XL pipeline and the overall upward momentum in the American economy.

The survey suggested that companies expect their costs to rise over the next year due to higher anticipated commodity prices, new carbon-pricing regimes in Ontario and Alberta, and the fact past exchange-rate depreciation has been largely built into prices.

The survey “again carried a more upbeat tone, flashing plenty of signs that the worst of the oil price shock is behind the Canadian economy,” Robert Kavcic, senior economist with BMO Capital Markets, said in a research note.

TD senior economist Brian DePratto wrote in another note that the survey was “another tick to the ‘plus’ column for the Canadian economy.”

“Although there are caveats around what pace it may translate to, investment intentions are sitting at historic highs, and the outlook for hiring remains healthy,” he said.

With the economy continuing to show improvements, all eyes will be on the Bank of Canada’s interest-rate announcement next week and the tone of governor Stephen Poloz’s message.

Last week, Poloz was asked about the recent string of stronger-than-expected data — and whether they had affected his thinking ahead of the upcoming policy decision.

Poloz replied that it would be “odd” to forget about all the downside risks just because some data points were a little bit better than expected.

He added that he had watched as positive economic indicators fizzle in the past and said the bank would proceed with caution.