Subdued Business Expansion Plans Pervade Bank of Canada PollGreg Quinn
Canadian business managers reported “subdued” expansion plans amid modest domestic demand and the continued fallout from an energy-price crash, a central bank survey found.
Fewer executives predicted faster sales growth, investment plans remained “cautious,” and there is “substantial” slack in the labor market, the Bank of Canada said Monday in its second-quarter Business Outlook Survey.
“Modest domestic demand, uncertainty and insufficient foreign demand are the key factors holding back investment intentions,” the Ottawa-based central bank’s report said. “Overall business sentiment is subdued.”
The survey -- the bank’s last scheduled public statement before the July 13 interest-rate decision -- showed little improvement in the outlook for business investment, a key ingredient in what Governor Stephen Poloz expects will be a recovery led by non-energy exports. The process has been frustrated by years of shaky global growth and continued weakness in commodity prices.
Many energy companies and related manufacturing and construction businesses are planning further cuts to investment or payrolls, the central bank said. Service companies and those tied to more U.S. demand are faring better.
“This is an early indication that maybe they aren’t as confident,” said David Tulk, head of global macro strategy at Toronto-Dominion Bank’s TD Securities unit, referring to how policy makers see the recovery. “There is this tug of war taking place in Canada’s economy and it doesn’t seem like the foreign demand side is winning this round at least.”
The balance of opinion for sales over the next year fell to plus 5 in the second quarter, from readings of plus 16 in the last three reports. The balance of opinion subtracts the percentage of those seeing slower gains from the percentage seeing a quickening.
Investment intentions were unchanged with a “modest” balance of opinion of plus 9, the bank said.
The central bank introduced another indicator of future sales on Monday, saying the balance of “concrete” signs like advance bookings fell to the lowest since 2009. The bank said it has asked the survey question since 2003, and included it for the first time in the published results because it’s a better indicator of economic-growth prospects.
On job plans, the balance for hiring fell to 21 from 26, below levels seen since the last recession.
One starker sign of slack in the job market was the 32 percent of executives who saw less intense labor shortages, versus the 13 percent who said they were more intense.
The survey of about 100 executives was taken from May 9 to June 8, before the U.K. vote on leaving the European Union that could pose another obstacle to global demand later this year.
(Updates with economist comment in fifth paragraph.)