Bank of Canada Surveys Show Tepid Business Outlook on Oil Drop

Canadian companies see business prospects as “tepid,” with commodity producers hurting from lower prices, a central bank survey showed.

A weaker dollar and growing U.S. demand are prompting manufacturers to expect an increase in future sales, while some service companies plan to expand, the Ottawa-based Bank of Canada reported Friday from Ottawa in a quarterly Business Outlook Survey.

“Although business sentiment remains tepid overall, forward-looking indicators of business activity improved,” the bank said. “The adverse effects of the persistent weakness in commodity prices continue to work their way through the economy.”

The Bank of Canada is counting on non-energy exports to help lead a rebound from the first half when falling energy exports and investments shrank the economy. The central bank cut interest rates in January and July and economists predict it will remain at 0.5 percent through next year. The next decision is Oct. 21.

Faster sales growth over the next 12 months was anticipated by 46 percent of those asked, while another 30 percent predicted slower gains. The balance of opinion on future sales of plus 16 was an increase from plus 8 in the last survey.

The balance of opinion between companies expecting to increase machinery and equipment purchases versus those predicting a decline also rose, to plus 14 from plus 7.

Today’s report also made several references to a country operating below its potential, from signs that “economic slack has widened recently” to “persistent labor market slack.”

The balance of opinion on whether labor shortages have become more or less intense over the last 12 months was minus 14, the bank said.

Annual consumer price inflation will advance between 1 percent and 2 percent over the next two years according to 63 percent of responses, down from 68 percent in the last survey. The central bank sets interest rates to keep inflation in the middle of a 1 percent to 3 percent band.

The survey found that on balance credit conditions were tighter. Some 20 percent of companies said credit conditions had tightened while 14 percent said they were looser.

A separate survey of lending officers showed credit conditions were “basically stable” as they have been over the last year, with a reading of positive 4.4 in the second quarter.

The senior loan officer survey gathered responses from Sept. 8 to Sept. 11. The business survey polled about 100 executives from Aug. 20 to Sept. 16.

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