Canadian firms cautiously optimistic about the future: Bank of Canada

Canadian firms are confident about future prospects and the economy, although they are still not certain of a strong recovery and remain cautious about investment and hiring, according to the Bank of Canada’s latest business outlook survey.  

The central bank’s summer survey reveals executives giving positive responses across a number of expectations, from sales activity, hiring intentions and investment plans.

“Overall, the outlook of businesses has not changed materially from the spring survey,” the bank said. “While responses suggest a more modest improvement in past sales activity, expectations for future sales growth remain positive, and there are indications that business sentiment regarding exports is gradually firming.”

But in many cases, confidence levels dropped from the spring survey. “The summer business outlook survey continues to offer some encouraging signs for the economic outlook, although lingering uncertainty and intense competition still hinders the pace of growth,” the bank said in an analysis of the results, which are based on a survey of 100 representative firms conducted between May 20 and June 12.

In the survey, 36 per cent of firms said sales volumes rose by a faster pace in the past 12 months than the year before, while 31 per cent said they had grown at a slower pace.

“Fewer firms anticipate difficulty meeting an unexpected increase in demand, and reports of labour shortages are little changed,” the banks said. “On balance, firms expect input prices to rise at a somewhat slower pace than over the past 12 months as upward pressure from the recent depreciation Of the Canadian dollar gradually dissipates. Strong competition continues to restrain expectations for output prices. Inflation expectations are unchanged and remain concentrated in the bottom half of the Bank’s inflation-control range.”

When asked about hiring intentions, 43 per cent of firms expected to add employees in the next 12 months, compared to only 15 per cent that planned to reduce workers.

The survey also showed signs of improvement for exporters, with businesses saying that they had a positive outlook based on a strengthening U.S. economy and a depreciation of the Canadian dollar. “Expectations for U.S. economic growth continue to strengthen, and orders from domestic and international customers show improvement from a year ago,” the bank said. “The balance of opinion on investment in machinery and equipment remains firmly positive, although investment plans are tied primarily to upgrading or replacing existing equipment over the next 12 months. Signs of more robust growth in foreign demand over the near to medium term are leading some exporters to favour investments with a longer-term strategic focus.”