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Bank of Canada Governor Mark Carney (CHRIS WATTIE)
Bank of Canada Governor Mark Carney (CHRIS WATTIE)

Business wary on recovery: survey Add to ...

Canadian companies are guardedly optimistic that the economic recovery is proceeding along, with more saying they intend to ramp up investment but fewer planning to increase hiring, according to a quarterly Bank of Canada survey.

The central bank's Business Outlook Survey for the July-through-September period, released Friday, found firms are slightly more optimistic about their sales prospects over the next 12 months than they were in the last poll. However, executives ``generally expect growth to be modest,'' the bank said, given the uncertainties in the global economy and particularly in Canada's No. 1 export market.

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``A weaker outlook for U.S. economic growth is dampening sales expectations in a number of cases and reinforcing the general view that growth is likely to be moderate,'' the central bank said in its survey. ``With this context in mind, firms are taking measures to reposition themselves for growth.''

Purchases of the machinery and equipment needed to increase their productivity is poised to surge over the next year, the survey found. The ``balance of opinion'' between executives planning to boost such investment and those planning to cut it reached a record 36, up from 12 during the previous three months, the survey showed. At the same time, the balance of opinion on employment slipped to 25 from 40, indicating more companies are satisfied with their current staffing levels after favouring hiring over investment for much of this year.

``Following a period of restraint in investment expenditures, many firms reported plans to resume more normal levels of spending, with an increasing focus on enhancing productivity or expanding into new and more profitable business lines,'' the central bank said in the survey.

Also, the bank said, ``Some firms had recently increased employment to a level sufficient to meet expected demand, while others were focusing on achieving productivity gains from new equipment or new processes.''

Moreover, the percentage of firms that would have some or significant trouble meeting a surprise jump in demand was little changed from the previous quarter, at 35 compared with 39, higher than recession-era levels but below historical averages for the survey. Some firms that have seen input costs such as commodity prices rise over the past year now see those increases slowing, and the picture for output prices was little changed from the previous survey -- indicating companies plan to keep prices stable or raise them only slightly.

``Competitive pressures and modest demand are expected to limit the magnitude of any price increases,'' the central bank said.

The business poll, based on about 100 interviews conducted across the country between Aug. 16 and Sept. 16, found companies' access to credit continued to ease in the third quarter. Still, while a separate survey of financial institutions also showed easier conditions, access to credit for small businesses ``appeared to be largely unchanged'' in the third quarter, the bank said, and overall business demand for loans from financial institutions ``remained modest.''

The findings of the survey come at a critical time for the global recovery. Bank of Canada Governor is increasingly expected to pause his interest-rate tightening campaign on Oct. 19 after three consecutive increases, and will release a quarterly forecast the next day that may downgrade projections for Canada and key trading partners like the United States.

Paul Ferley, assistant chief economist at Royal Bank of Canada, said in a note to clients that the survey respondents' expectation of moderate growth, combined with ``softer-than-expected inflation numbers,'' underscore the likelihood that Mr. Carney will step to the sidelines for at least a few months.

``Today's report reinforces a view of a steady overnight rate that we expect to be maintained until March of next year at which time we expect the central bank will resume a gradual pace of tightening policy,'' Mr. Ferley said.

In a further sign that Canada's eye-popping rebound earlier this year has ground to a halt, the economy unexpectedly shed 6,600 jobs in September, the second drop in three months, showing many employers are already taking a break from hiring. Details of the report were stronger than the headline suggests, with higher paying, more stable full-time jobs rising for a second month in a row.

The U.S. economy shed 95,000 jobs last month, the Labour Department said Friday, and the jobless rate has now topped 9.5 per cent for 14 straight months, the longest stretch since the 1930s.

The International Monetary Fund said this week that Canada is feeling the effects of the U.S. malaise more than most: The IMF reduced its forecast for Canadian GDP growth this year to 3.1 per from 3.6 per cent, saying risks to the economy ``are mainly external.''







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