Skip to main content

Sluggish profits might lead Bank of Canada to reconsider its outlook

Toronto’s Bay Street, home to Canada’s financial district, is pictured in January, 2013. Sluggish corporate profits might force the Bank of Canada to reconsider its positive outlook for the rest of the year.

MARK BLINCH/REUTERS

If the Bank of Canada is counting on a pick-up in business investment to help fuel the country's economic growth recovery – and it has said, repeatedly, that it is – then the latest corporate-profit statistics aren't going to make it feel great about its outlook.

Statistics Canada reported Tuesday that on a seasonally adjusted basis, operating profits at Canadian corporations fell 1.2 per cent in the first quarter from the fourth quarter. On a year-over-year basis, profits were down 3.3 per cent. It was the third consecutive quarter with a year-over-year decline. Operating revenues were also down 1.2 per cent in the quarter, and 0.8 per cent from a year earlier.

The quarter-over-quarter declines were pretty widespread, too. Profits fell for 14 of 22 industries – including 10 of 17 non-financial sectors.

Story continues below advertisement

Non-financial profits overall actually crept up 0.3 per cent in the quarter, due entirely to a 28-per-cent surge in oil and gas profits. Still, profits in the oil patch remained a shocking 46 per cent below year-earlier levels. Manufacturing profits were down 1 per cent on the quarter, and down 8.4 per cent year over year.

Profits in financial sectors slumped 4.7 per cent in the quarter.

"The effects of a low-profit environment are being felt through other channels of the economy," said Toronto-Dominion Bank economist Jonathan Bendiner in a research note. Specifically, he noted, Statscan's survey of business investment intentions, released earlier this year, indicated that overall investment spending plans for 2013 were up just 1.7 per cent from 2012, the slowest pace since the 2009 recession.

None of this is very encouraging for the Bank of Canada, which is preparing to share its latest view on the Canadian economy in Wednesday's interest-rate announcement. (The rate statement is far from a full economic outlook, but the central bank does use it to tweak its public position on how the economy is doing, and how that reflects on the bank's growth projections.) In the bank's most recent rate statement as well as in its latest Monetary Policy Report, both issued in mid-April, it expressed confidence that economic growth would accelerate in the second half of this year – and that improved business investment would be a catalyst (along with a recovery in exports). But with sluggish profits adding to corporations' already weak appetite for spending, the bank may have to re-think its position.

Mr. Bendiner noted that the Bank of Canada's latest Business Outlook Survey, also published in April, did indicate that Canadian businesses expect a modest improvement in sales growth this year – which would be positive for the profit picture. But the fact that there was no sign of any such recovery through the first quarter of the year merely adds to the uncertainty that has kept businesses cautious and kept their spending plans on ice. The Bank of Canada's hoped-for upturn in business investment may still come, but the weak first-quarter profit numbers suggest the timing is far from imminent – and may not be much of a contributor to an economic upturn for several months, at the very least.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Discussion loading ...

Cannabis pro newsletter