Canadian businesses are pinning their hopes on a stronger U.S. economy to boost sales, hiring and investment this year.
The Bank of Canada’s quarterly business outlook survey, released Monday, points to “some positive signs” that the economy will improve over the next 12 months.
Optimism about the future is based almost entirely on what’s happening outside Canada, most notably in the U.S.
“Firms’ sales expectations are supported by a gradually strengthening outlook for U.S. economic growth, and those with international sales report that order from customers outside Canada have generally improved compared with 12 months ago,” according to the survey.
Domestic conditions, on the other hand, remain “subdued,” the bank said.
Inflation expectations are muted as businesses report that weak demand and intense competition is limiting their ability to raise prices or to consider major increases in capacity. Sixty-nine per cent of respondents said the annual inflation rate would remain below the bank’s official two per cent target, down slightly from the previous survey.
The survey suggests a modest pickup in Canadian exports may be near. The country recorded a 23rd consecutive monthly trade deficit in November, paced by weaker exports.
“Businesses report that orders from customers outside Canada have generally improved compared with 12 months ago . . . [but] many firm continue to cite difficulties in growing market share in the face of tough competition from U.S. and other foreign firms,” according to the report.
The survey is based on interviews with senior managers at 100 companies, selected to match the make up the Canadian economy. It was conducted between Nov. 18 and Dec. 12.
Slightly more than half of respondents said they the pace of sales growth would accelerate in the next 12 months, 53 per cent of companies expect to hire more workers and 42 per cent plan to boost spending on machinery and equipment.
Optimism was concentrated among service firms. Manufacturers and other goods-producing companies remain more pessimistic.
And the bank said companies plan to concentrate investments on shorter projects, aimed at upgrading technology and equipment, rather than major capacity expansions.
But for the second consecutive survey, business reported that sales growth slowed in the previous 12 months – an indication that current conditions haven’t yet caught up to expectations.
A separate survey of lenders, also released Monday, reported a “slight easing in overall business lending conditions.” Prices were better for all categories of borrowers, the bank said.
“On balance, the two surveys are slightly more encouraging for growth than might have been feared,” CIBC World Markets economist Avery Shenfeld said in a research note.