A cyclist passes the Bank of Canada building in Ottawa.CHRIS WATTIE/Reuters
Canadian executives are growing more worried about the uncertain global backdrop and sputtering U.S. rebound, but not enough to cut jobs or stop taking steps to bolster their competitiveness over the long haul.
The Bank of Canada's Business Outlook Survey for the third quarter, released Monday, found that the companies being counted on to power the recovery forward are less optimistic about sales prospects than earlier this year, and fewer face capacity pressures or plan to raise prices. On the question about future sales, the "balance of opinion" – the gap between those anticipating faster sales growth in the next year versus those forecasting a slowdown – was the lowest since 2009.
Still, the survey found that while hiring expectations have dipped from a record high, companies across the country and in most sectors of the economy still plan to add staff over the next year.
And while some companies are scaling back their investment and capital spending plans – with a few saying they may be forced to delay projects – 41 per cent of firms said they still plan to spend more on new machinery and equipment than they did in the past year.
That's a sign companies are embracing the message of policy makers who have argued that, regardless of the slowdown in demand from regions like the U.S. and Europe, they must move aggressively and creatively to crack new markets in the developing world, and to maintain existing customers amid fierce competition from new rivals.
"Weaker expectations for U.S. growth and a more uncertain global outlook weigh on business sentiment," said the survey of about 100 executives, conducted between Aug. 22 and Sept. 22. "Amid concerns about the level of demand, many firms forecasting an increase in sales growth over the next 12 months reported that they expect to achieve this by introducing new products or by adopting strategies to increase market share."
Gerry Remers, president and chief operating officer at Kitchener, Ont.-based Christie Digital Systems, said his company had a booming first half of 2011, as cinemas around the world switched to the high-end digital projectors that it designs and makes.
But as with the recovery, the challenge for the company, which exports about 90 per cent of its Canadian production, is to maintain momentum.
The company plans to hire only cautiously over the next year, Mr. Remers said in an interview, increasing its head count by maybe between 5 and 8 per cent. At the same time, he said, it is forging ahead with efforts to push into emerging markets to make up for declining sales in Europe.
"We've started focusing a lot more on the developing economies," he said. "When we can't count on Europe to solidify the sales gains we've made, we need to look at India, Indonesia, Russia, Brazil to offset some of that."
The business survey comes a week before Bank of Canada Governor Mark Carney's next interest rate decision, on Oct. 25, at which he is expected to keep borrowing costs on hold at 1 per cent. The next day, he will release a quarterly forecast that almost certainly will downgrade the central bank's economic forecasts for the U.S. and Europe.
The survey found 43 per cent of companies would have some or significant trouble meeting a surprise jump in demand, down from 51 per cent in the previous survey – a drop that suggests less pressure to increase wages. Also, executives planned to raise their prices more slowly over the next year. and their own inflation expectations have dropped.
Those findings show Mr. Carney has been right to leave rates alone even in the face of hotter-than-expected, energy-fuelled inflation readings over the summer months, economists said.
"A lot of the rise in inflation has had to do with temporary factors, and we see in today's report that business inflation expectations are already on the way down," said Krishen Rangasamy, a senior economist with National Bank Financial. "They feel that they can't keep raising prices because of the new global economic picture, which isn't as pretty as in the summer."'