Bank of Canada says mood of Canadian businesses remains ‘subdued’ as oil shock lingers

OTTAWA – The mood among Canadian business leaders is “subdued overall,” because the drag in the oil-price shock is constantly on the overshadow steady foreign demand that’s been fuelled with a weak dollar.

“Expectations for future sales growth remain positive, with clear signs of support from U.S. demand,” the financial institution of Canada said Friday in the spring Business Outlook Survey.

“Yet, the outlook for domestic sales is guarded in light of sluggish demand and also the ongoing adjustment to lower oil prices.”

At the same time frame, the number of companies that plan to invest more and hire additional staff increased “but remain modest,” using the survey indicating opinion is “sharply split among firms.”

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Their views “continue to diverge sharply, based on whether or not they are associated with the commodity sector and on their contact with foreign demand,” the financial institution said.

On the whole, however, the outcomes offer the view that business sentiment since the previous quarterly poll has “improved but remains subdued overall.”

The spring survey of approximately 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 because they continue to adjust 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 sought after for his or her products.



And even though many companies believe their costs will rise “at a rather greater rate,” they expect inflation to maneuver only marginally higher within the coming months. Many also anticipate that minor upward price pressure will remain restricted to the low end from the Bank of Canada’s target range of between one and three per cent.

Nick Exarhos, at CIBC Economics, said that “all told, not really a report to cheer for, only one that reverses the prior quarter’s gloominess, leaving 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 have declined.

Demand for credit by businesses, however, was basically unchanged between January and March, with corporate borrowing increasing, while demand eased among smaller businesses and commercial operators.

“Tightening in lending conditions was mainly for corporate borrowers and was concentrated in the gas and oil sector,” the financial institution said.

“The metals and mining sector and Alberta property were also mentioned by a few respondents to be impacted by tightening.”

Even so, you will find indications of a potential sustained turnaround in the Canadian economy.

On Thursday, Statistic Canada said gdp in January grew by 0.6 percent, the fastest pace in almost three years.

That strong showing, when combined with a string of three monthly gains after 2015, points to a much better advance in gross domestic product for the first quarter of this year.

Many economists have finally adjusted their meagre forecasts close to one per cent GDP growth between January and March to more than three percent.

The economy’s January performance – along with the new Liberal governments stimulus bundle release in the federal budget on March 22 – will probably push back any thoughts of lower rates of interest from the Bank of Canada, and may keep policymakers on hold at 0.5 per cent well into the coming year.

Earlier within the week, a Bank of Canada deputy governor said hello could take 2 yrs or even more for the economy to fully adjust to the plunge in commodity prices.

Lynn Patterson, in a speech delivered in Edmonton, said the commodity sector’s share of exports by 2020 could be reduced to 40 percent from Half in 2014. The energy sector’s share of economic investment could similarly decline, according to the central bank’s estimates.

Financial Post

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