Canadian businesses are more bullish about their prospects as the economy gathers momentum, but their mood is tempered by persistent worries about U.S. protectionism and tax reform.
There are “signs of a further strengthening of demand” after two years of stagnation, the Bank of Canada said in its latest quarterly business-outlook survey, released Monday.
Executives surveyed by the central bank say they are generally more optimistic about future sales, exports, investing and hiring.
It all points to what the bank characterized as a “modest recovery in business sentiment.”
The relatively upbeat tone of the survey suggests that the “Canadian economy has moved past the oil price shock, and is again flashing above-potential growth,” BMO Nesbitt Burns Inc. economist Robert Kavcic said in a research note.
In spite of the better mood, economists said Bank of Canada Governor Stephen Poloz remains extremely cautious, and is unlikely to shift his view that there is still plenty of unused capacity in the economy as he prepares the bank’s April 12 interest-rate announcement and latest quarterly forecast. That will likely mean no interest-rate hike, and no hint that one is coming.
The bank said the survey shows companies “remain wary in an environment of elevated uncertainty about potential U.S. policy changes,” even though most say they’ve yet to feel any negative consequence. Many respondents expressed fears about protectionism and losing competitiveness if the United States slashes business taxes in the months ahead.
The closely watched survey, conducted between Feb. 15 and March 9, is based on interviews with top managers at 100 companies chosen to reflect the composition of Canada’s gross domestic product.
The survey comes against a backdrop of an improving economy. Economists have been upgrading their forecasts for GDP growth this year after the economy surged ahead 0.6 per cent in January, matching the strongest single-month growth since mid-2011. Over the past six months, the economy has been growing at a healthy 4-per-cent annual clip.
The performance is starting to filter through to business optimism.
Roughly the same number of companies reported that sales growth rose in the past year compared with those seeing slower sales growth. The bank said the responses reflect a divergence between the oil slump-affected prairies and the brighter outlook in Ontario and British Columbia.
Companies are even much more bullish about what lies ahead. Fifty-two per cent expect sales to grow faster over the next year, compared with 31 per cent that expect sales growth to slow. And based on new orders, the reading on “indicators of future sales” reached its highest level in five years.
The survey also shows a significant improvement in their plans to spend on machinery and equipment, with 46 per cent saying they expect to invest more in the next 12 months, compared with 11 per cent reporting plans to cut spending. Forty-three per cent report no change. It was the best reading since the end of 2010, before the 2014 oil-price collapse sent business investment into a tailspin.
The bank said it suggests that intentions to invest have become more “widespread.”
Meanwhile, a composite measure of business spending – the Business Outlook Survey indicator – points to a “modest” recovery, according to the survey. The indicator moved into positive territory for the first time since late 2014.
The survey found “modest” excess in business capacity, weak expectations that companies will be able to raise prices and no significant change in credit conditions.
A separate survey of loan officers shows that lending conditions remained “essentially unchanged” in the quarter.Report Typo/Error