BoC survey shows modest investment pickup

By Staff, with files from The Canadian Press | April 3, 2017 | Last updated on April 3, 2017
2 min read

The Bank of Canada says it’s detecting early signs of a “modest” pickup in corporate investment over the near term, even amid considerable uncertainty surrounding the U.S. economic agenda.

The central bank says the signals of a recovery in business investment are starting to emerge after a two-year period of weakness triggered by the oil-price shock.

The bank is releasing the findings along with poll results that suggest Canadian firms, on balance, are more optimistic about the future than they were in January for areas such as sales growth.

The poll finds 52% of firms expect an acceleration in sales in the next 12 months versus the prior 12-month period, while 31% see a slowdown.

“That’s not as good as the last survey,” says Avery Shenfeld, director and chief economist at CIBC Capital Markets, in a note on the survey. “But more [firms] are now expecting to put their money into investment spending on machinery and equipment, with 46% seeing an increase (and only 11% seeing less [capital expenditures]) — the best score since the exit from the recession.” This uptick in spending is downplayed by the Bank in the survey, he says.

The survey also shows firms aren’t yet seeing capacity pressure, but “that result is heavily tilted toward slack in the Prairies (i.e., the oil-producing region),” says Shenfeld.

Read: Don’t be fooled by strong growth expectations

The central bank’s latest business outlook survey also suggests when it comes to exports many companies have concerns about the impacts of potential Trump policy changes, including increased protectionism and plans to slash U.S. corporate taxes.

On the other hand, the poll finds that some of the firms surveyed between mid-February and early March saw benefits from the U.S. — with the approval of the Keystone XL pipeline and the overall strengthening of the American economy.

Read: Potential growing pains for Canada’s economy

The survey also suggests that companies expect their costs to rise over the next year due to higher anticipated commodity prices, new carbon-pricing regimes in Ontario and Alberta, and the fact that past exchange-rate depreciation has been largely built into prices.

The poll results are being released following encouraging data run in recent months for growth, trade and the job market.

Overall, Shenfeld calls the survey results “decent,” though he says the Bank’s commentary remains dovish, which is consistent with its view that economic slack remains.

Read: Economists differ on timing of potential 2018 rate hikes

Read the Bank’s full survey outlook here.

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Staff, with files from The Canadian Press

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