Canadian firms still positive about future, but some see moderation ahead: central bank

Firms remain upbeat about future sales, business investment and hiring — but some are predicting a moderation following last year’s red-hot pace, the Bank of Canada’s latest business outlook survey said Monday.

The central bank’s quarterly poll of about 100 firms found overall business sentiment remained positive and above historical averages, even though the indicator dipped somewhat compared with January.

“Forward-looking sales indicators remain positive across most regions and sectors. Some firms expect a moderation in sales activity from high levels in the past year,” the report said.

“Although less so than in recent surveys, intentions to increase investment continue to be widespread. Employment intentions are solidly positive, based on firms’ plans for hiring to support expected sales growth or to expand operations.”

The survey, conducted between Feb. 12 and March 9, was released about a week before the Bank of Canada’s next decision on its trend-setting interest rate.

The Canadian dollar traded higher in the wake of the report, changing hands at 78.71, up 0.39 of a cent.

“The Bank of Canada’s Business Outlook Survey pointed to a generally upbeat corporate sector,” said Don Curren, strategist at Cambridge Global payments, in a commentary. “While that provided a boost to the Canadian dollar, it’s not likely to prompt a major revision to the broadly held view the Bank will remain on hold next Wednesday.”

Central bank governor Stephen Poloz has raised the benchmark rate three times since last July, however, he’s expected to proceed cautiously due to trade and competitiveness challenges as well as signs Canada’s powerful economic performance of 2017 has cooled.

TD senior economist Brian DePratto suggested the report would support the case for quicker action on interest rates.

“Despite this, it is hard to imagine that next Wednesday’s rate decision will see the next hike given still elevated uncertainty,” he said in a commentary. “Rather, the rate decision and Monetary Policy Report will be an opportunity for Governor Poloz to provide an update on how he sees the economic outlook evolving and a sense of the ‘thresholds’ to be surpassed before the next rate increase.”

“The Bank of Canada will likely view this survey as a sign that the economy continues to operate near capacity, but with inflation pressures only creeping higher and a number of uncertainties…still weighing on the outlook, there’s little rush to tighten at the April meeting. We continue to call for the next…rate hike to come in July,” said Benjamin Reitzes of BMO Capital Markets. 

Sales growth expectations

The central bank’s survey found companies expected sales to grow at a faster pace over the next 12 months, but it noted several of the firms anticipated a moderation of activity following the strong performance of the past year. The responses often reflected expectations of a return to a more sustainable pace, the report said.

Firms polled also anticipated stronger sales overall from increasing U.S. demand. However, some also said they expected protectionism and reduced competitiveness could limit the benefits they see from the improving American economy.

The report said most firms still planned to boost investments in machinery and equipment over the next year, although the indicator edged down compared to its reading in the January survey. The responses showed plans for greater spending were most widespread in the services sectors.

The poll also found hiring intentions increased — and were widespread across regions and most sectors — amid continued concerns that labour shortages had intensified over the last year.

“Labour-related constraints continue to be the most-prevalent obstacle to scaling-up operations in response to an unanticipated increase in demand,” the report said.

“On balance, firms anticipate capacity pressures to further intensify over the next 12 months, pushed by strong sales prospects and expected difficulties finding labour.”

SOURCE: CBC.ca

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