Canadian business outlook brightening

Survey shows rising hopes for future, fewer trade worries.

Canadian businesses reported a slight increase in sentiment amid reduced concern about global trade conflict, according to a Bank of Canada survey.

The Ottawa-based central bank’s fourth-quarter survey of executives found indicators of future sales like new orders have picked up, particularly outside of the energy sector. Employment intentions have also increased, along with signs of businesses running up against capacity.

The composite gauge of sentiment rose to 0.74, which is the highest reading since the end of 2018 and the thirdstraight quarterly improvement.

Results “suggest that business sentiment is broadly positive except in the Prairies, where indicators remain weak,” the Bank of Canada

said in a summary of its findings. “In aggregate, firms’ outlook is supported by expectations of healthy domestic and foreign sales.”

That sentiment has improved at all may be a positive surprise for analysts, given early estimates for growth in the fourth quarter show a sharp slowdown at the end of last year.

The survey was conducted between Nov. 13 and Dec. 9, before two big breakthroughs on the global trade front — the final signing of the North American free trade agreement and the announcement of a U.S.-China agreement on a phase-one trade deal. That suggests there is some upside for sentiment going forward.

Bank of Canada Governor Stephen Poloz puts significant weight on the survey, which he considers an important supplement to harder economic data. The report, the last major data point before the central bank’s Jan. 22 decision, won’t be adding any pressure on the central bank to cut borrowing costs

The Bank of Canada said businesses seemed to be less concerned about trade tensions at the end of last year, making them less guarded about future foreign sales. Fewer respondents, for example, expected a U.S. recession.

The survey questions with the biggest improvements were around indicators of future sales and employment intentions. The share of firms planning to expand their workforce rose to 53%, the highest since the second quarter 2018. Indicators of future sales also rose to the strongest in more than a year.

The Bank of Canada said businesses seemed to be less concerned about trade tensions at the end of last year, making them less guarded about future foreign sales.