Bank of Canada Poll Says Fewer Companies See Faster Sales

Fewer Canadian executives expect faster sales growth, and most still believe inflation will remain low, according to a central bank survey.

The difference between the percentage of managers who predict faster or slower sales increases in the next 12 months fell to 24 percentage points from 27 points in the Bank of Canada’s second-quarter Business Outlook Survey. The share of executives who said inflation will average between 1 percent and 2 percent over the next two years was little changed at 64 percent.

“Competitive conditions remain challenging, and many firms have yet to see signs of a notable and sustained strengthening in demand,” said the report today from Ottawa. “Tepid domestic demand and intense competition continue to moderate firms’ expectations for future inflation.”

Bank of Canada Governor Stephen Poloz has said there is a risk of persistent slow inflation this year even amid temporary gains in energy costs. He’s counting on business spending and exports to take over from consumers in driving economic growth. Economists predict Poloz will keep the central bank’s benchmark interest rate at 1 percent at the July 16 decision, with no change until at least mid-2015.

“A softer set of readings from the Bank of Canada’s survey will be seen as providing some support for maintaining its dovish stance,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. The forecast of slow inflation is significant after the last report showed the core index that excludes eight volatile items quickened to a 1.7 percent pace in May from a year ago, he said.

Market Reaction

Canada’s dollar weakened after the report, depreciating 0.1 percent to C$1.0664 per U.S. dollar at 12:43 p.m. in Toronto. Government bonds rose, pushing the yield on benchmark 10-year debt lower to 2.31 percent, from 2.33 percent at the end of last week.

The executives pointed to a stronger U.S. economy and a weaker Canadian dollar as reasons to be optimistic about exports. Canada’s currency has lost 5.8 percent over the past 12 months, the worst performer among 10 major currencies tracked by Bloomberg Correlation-Weighted indexes.

Business investment plans rose for a third quarter, with the balance of opinion rising to 24 points from 21 points, the central bank said.

Thirty-four percent said they would have some or significant difficulty meeting an unexpected rise in demand, down from 45 percent last quarter. The share of executives reporting labor shortages fell to 22 percent from 23 percent.

Easing Conditions

Credit conditions eased in the second quarter, the central bank’s survey of executives showed. The balance of opinion, which subtracts the share of executives reporting easier conditions from those who expect tightening, was minus 27 percentage points, compared with minus 8 percentage points in the prior quarter. The survey of about 100 executives was taken May 20 to June 12.

A separate survey of senior lending officers had a balance of opinion of negative 12.8 percentage points, suggesting easier credit conditions. That measure has shown easing conditions since the end of 2009.

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