Business sentiment deteriorating across Canada: BoC

Business sentiment has deteriorated across Canada, with firms reporting little change in credit conditions, says the Bank of Canada’s latest Business Outlook Survey.

The survey notes that “while firms continue to anticipate an acceleration in their sales over the next 12 months, the diverging outlook evident in recent surveys persists. The low-commodity-price environment poses significant challenges for many businesses, [given] the adverse effects of the shock are increasingly being felt across most regions and sectors. [But], expectations for future sales are more robust among exporters in light of strengthening foreign demand.”

Still, says the survey, “Investment and hiring intentions have fallen to their lowest levels since 2009, as domestically oriented firms and those exposed to the resource sector adjust their plans to slower activity.”

Read: BoC may cut rates again by mid-year: experts

Further, “Capacity pressures are still subdued, largely owing to weak demand conditions, especially for firms in the prairies […] Businesses expect input and output prices to rise at a slower pace,” in part due to dip of the Canadian dollar and weak market conditions. Inflation expectations fell, with a greater share of firms expecting inflation to be in the lower half of the BoC’s inflation-control range.”

The Bank’s report highlights how far the oil shock has spread, says Nick Exarhos, director at CIBC World Markets. “[Even] though much of the weakness is concentrated in the oil-producing provinces, weakness is ‘now also evident in other regions.’ That’s a result of firms being more concerned on the domestic economic outlook, a result of the spillover effects from the crude shock.”

As a result, “[Any] optimism on top line-growth isn’t being reflected in firms’ intentions for investment and employment.” Plans to cut stuff are “more widespread,” according to the Bank’s report and not exclusive to commodity-producing sectors and regions.

Click here to read the whole report.

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