Is the oil price shock behind us?

October 7, 2016 | Last updated on October 7, 2016
2 min read

Energy sector businesses may finally have something to look forward to: in the Bank of Canada’s latest Business Outlook Survey, firms across the country indicate they’re now seeing “a gradual bottoming out of the negative effects of the oil price shock.”

After two years of hardships, says the survey, resource-related firms are more confident about future growth. It notes, “Given the relatively stable commodity prices in recent months, businesses now cautiously believe that sales will no longer fall or will increase modestly.”

Futher, “The outlook for exports remains supportive, as foreign sales are expected to gain momentum over the coming 12 months. […] Export perspectives continue to be more positive than views about domestic conditions.”

Overall, both investment and employment intentions for all businesses have improved, with cuts tapering off in the resource sectors specifically, says the survey, which adds, “Plans to increase investment are more widespread among service-oriented firms and often involve smaller-scale expenditures on information technology. ƒ[Meanwhile], capacity pressures are roughly unchanged; against a backdrop of still substantial slack, indicators of labour shortages [have] moved up.”

The main downside for business is the slowing U.S. economy and the potential effects of the presidential election. The survey says, “The United States remains the main driver of positive prospects for exports, although businesses tend to expect U.S. growth to be slow overall. This view is often related to the climate of uncertainty around the outcome of the presidential elections in November.”

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In a research note, CIBC’s Avery Shenfeld, says, “The BoC survey was a mixed bag, leaving the impression that the worst is over, but the best is not yet to come. […] But on the key question of capital spending, while the headline shows an improvement, the text notes its mostly coming from sectors that don’t actually do big ticket cap-ex, with factory capital spending plans remaining ‘weak.'”

Shenfeld notes “labour market indicators on hiring and slack are a bit better, but on inflation, firms expect their price gains to further decelerate, which will feed into the Bank of Canada’s recent concerns about downside risks to their inflation targets.”

For more on the business environment, and on the evolving impact of the low dollar and weak commodities, read the full survey.

The BoC has also released its Q3 Senior Loan Officer Survey, which finds business lending conditions were largely unchanged in the quarter. Non-price lending conditions tightened slightly, but that as “concentrated among corporate borrowers from the oil and gas sector. Price conditions for corporate borrowers were unchanged,” says the SLOS.