Bank of Canada Survey Shows Fewer Businesses Predict Faster Sales Growth

The Bank of Canada’s quarterly survey of executives found the lowest gauge of future sales growth in two years, while more business leaders forecast quicker inflation.

Some 51 percent of companies said they expect faster sales growth over the next 12 months while 38 percent predicted growth would slow, leaving the so-called balance of opinion at 13 percentage points, the Bank of Canada said today in its quarterly Business Outlook Survey. That was the lowest since a reading of negative 22 in the first quarter of 2009.

The share of executives who predicted the inflation rate would advance by more than 3 percent over the next two years increased to 15 percent from 3 percent. Another 58 percent said the consumer price index would rise between 2 percent and 3 percent, up from 44 percent. The Ottawa-based central bank has an inflation target of 2 percent, and said today that food and energy costs led to higher inflation expectations.

The bank will probably keep its benchmark interest rate at 1 percent at its next decision April 12, according to a calculation by Credit Suisse based on overnight index swap rates. Governor Mark Carney has kept the rate unchanged since September and said at the last announcement on March 1 policy makers would carefully consider future increases in a recovery that is “slightly faster” than they forecast.

Raised Expectations

“Businesses remain positive about the economic outlook, although some forward-looking indicators have eased from the levels recorded in recent surveys, and the strength in commodity prices has raised expectations for costs and inflation,” today’s report said.

The Canadian dollar depreciated 0.5 percent to 96.79 cents per U.S. dollar at 12:00 p.m. in Toronto, after earlier touching 96.16 cents, the strongest since November 2007. One Canadian dollar buys $1.0332.

The survey today also said that “a number of firms voiced concerns about the impact of the high Canadian dollar and strong foreign competition on their business.” The Canadian dollar has been worth more than the U.S. dollar since the start of February.

Some 46 percent of executives predicted more investment in machinery and equipment, versus 22 percent who predicted less. The balance of opinion fell to 24 percent from 29 percent. The survey also found that 43 percent of businesses would have “some” or “significant” difficulty meeting an unexpected rise in demand, up from 38 percent.

‘Dwindling Away’

“Spare capacity is still dwindling away and we still have a pretty good economic outlook,” said Jacqui Douglas, a senior economic and currency strategist at TD Securities in Toronto. She predicts a July rate increase.

The higher inflation expectations may have been amplified by unrest in the Middle East and northern Africa that drove up oil prices as the survey was taken, Douglas said. About 100 managers were canvassed from Feb. 14 to March 10, and crude oil prices surged to a 29-month high on March 1.

The survey found 21 percent of companies said credit conditions had loosened while 14 percent said they were tighter.

A separate survey of lending officers suggested credit conditions eased in the first quarter. The balance of opinion on overall conditions was negative 31.7 percent, with readings less than zero indicating conditions became looser.

The senior loan officer survey gathered responses from “major Canadian financial institutions” from March 7 to March 11.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net. Christopher Wellisz at cwellisz@bloomberg.net

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