Canadian businesses are still gun-shy about investing and hiring in the face of weak demand and persistent economic uncertainty, according to the Bank of Canada’s latest business outlook survey.
Slightly more than half of businesses said they expect sales to grow at a faster pace in the next 12 months – the second-best reading since 2010, according to the quarterly survey released Friday.
But that glimmer of optimism about future sales isn’t yet translating into a lot of conviction about investing and expanding capacity. Part of the reason is that a majority of business reported flat or falling sales in the past year.
Investment intentions, while modestly positive, weakened and are now lower than they’ve been since 2009. Hiring intentions also fell.
“Many firms continue to report that uncertainty is affecting investment decisions, notably by leading them to postpone some projects, or to shift their focus toward initiatives that involve less risk or smaller outlays – such as repairing and replacing existing equipment – or that target new or different segments of demand,” the central bank said.
The fact that businesses are less confident about investing is likely a disappointment to Bank of Canada Governor Stephen Poloz, who said in a recent speech that the economy is at a tipping point and poised to do better.
In a research note, CIBC World Markets called the survey results a “critical miss” for a central bank that has been counting on capital expenditures and exports to spur the economy in the months ahead.
Inflation expectations also remain muted. The survey, conducted between Aug. 26 and Sept. 19, showed that businesses expect “slightly” higher input prices in the next 12 months. But the reading remains “close the low levels seen over the past eight surveys,” the bank said.
Some analysts now don’t expect the Bank of Canada to resume raising its key interest rate until 2015, and even 2016.
A separate survey of bank loan officer, also released by the Bank of Canada, shows that credit conditions are easing for business borrowers, including lower interest rates. But there has been a “modest” drop in demand for credit.