BUSINESS

Bank Of Canada Business Outlook Survey Finds Optimism Among Executives

07/09/2012 10:31 EDT | Updated 09/08/2012 05:12 EDT
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OTTAWA - Canadian firms remain surprisingly optimistic about the next year — with positive expectations for sales, investment and hiring despite concern about the global economy, the Bank of Canada's new survey of business intentions suggests.

The much-watched quarterly survey, released Monday, reveals a Canadian business sector that is wary about the renewed uncertainty and risks over the global outlook, but mostly confident they will be able to cope.

The most encouraging reading is on hiring intentions, with 59 per cent of firms saying they plan to hire additional workers in the next 12 months, as opposed to only six per cent that plan to cut jobs.

"Responses to the summer survey suggest that business generally remain positive about the outlook, but are mindful of renewed uncertainty regarding the global economic environment," the central bank said in its analysis of the findings.

"Several factors support the overall view ... including commodity-related activity and the resulting spillover effects, firms' own initiatives to reposition themselves for growth, and gradually improving U.S. demand."

The survey was conducted between May 22 and June 14, following months of headlines about the European Union's inability to devise a long-lasting solution to the region's debt crisis.

The EU leaders surprised many in late June when they announced a plan to pump cash from a fund directly into troubled banks, rather than adding to the national debts of individual member countries.

If there was one signal the European difficulties were crossing the Atlantic, it was on the issue of credit conditions. By a narrow margin, firms reported some tightening conditions over the past three months, following a broad-based easing trend.

But that finding was undercut somewhat by the accompanying survey of senior loan officers, who judged that business-lending conditions had eased somewhat in the second quarter, although fewer thought that than three months earlier.

The overall findings went against the grain of most business and consumer confidence samplings in the past two months, that have generally detected a darkening sentiment.

As well, global economic conditions have deteriorated since the spring, and not just in Europe. Emerging market growth has slowed and expectations for expansion in the U.S. — Canada's largest export market by far — has also suffered a setback.

In a new forecast released Monday, the Organization for Economic Co-operation and Development said China and India had entered more marked economic slowdowns while growth continues to moderate in most major industrial economies.

The Bank of Canada did note that sales expectations for Canadian firms were not as strong in the latest sampling as three months ago — with 47 per cent expecting shipment volumes in the next year to grow at a faster pace rate than in the past 12 months, as opposed to 32 per cent who expect sales to slow.

The 15-point positive balance of opinion is about half the result of the spring survey, but the Bank of Canada cautions the readings come off different sets of expectations.

"This partly reflects the fact that some firms do not expect sales growth to exceed the strong rate experienced over the past 12 months, as well as some tempering effects from renewed uncertainty," it explained.

Analysts said the survey results were unusually rosy given the economic backdrop.

"While it (sales expectations) was down a bit, the surprise here is that businesses are still relatively upbeat on the outlook," said Doug Porter, deputy chief economist for BMO Capital Markets."

"They remain incredibly upbeat on their hiring intentions and still have relatively robust investment intentions as well."

Porter added that the survey may prove overly optimistic. He noted that the hiring intentions reading matched very strong results a year go, but that did not translate into a hiring spree in the second half of 2011. In fact, hiring mostly stalled in the aggregate during the last six months of last year.

Most economists expect the record to be repeated this year, with below-trend hiring growth in the latter half of 2012. The last two months has seen employment gains average just about 7,500, not enough to keep up with the growth in available workers.

The 24-point positive balance of opinion on investment intentions was similar to the spring and confirms that firms in Canada continue to invest in machinery and equipment, taking advantage of the favourable currency exchange rate.

On other questions, some firms reported labour shortages, but no more so than in the spring and most were concentrated in western Canada, where the unemployment rate has hovered about two points below the national average.

Firms also don't expect the increase in what they can charge for products and services to be much different from last year's pace, but at the same time, they also don't expect input costs to rise at a greater rate. Nearly all firms expect inflation to remain tame.

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