OTTAWA — Canadian businesses are expecting only a marginal acceleration in sales growth over the next 12 months, a new Bank of Canada poll released Monday suggests.
The central bank's latest business outlook survey found that sales prospects remained gloomy among companies hit hard by the oil price slump.
"The moderation in future sales expectations was concentrated among firms in the Prairies, which see few signs of a recovery from the oil price shock,'' the bank's quarterly survey said.
Stephen Poloz, governor of the Bank of Canada, pauses while speaking during a keynote address at the Canada-US Securities Summit in New York on April 26, 2016. (Photo: Victor J. Blue/Bloomberg via Getty Images)
But in other regions the poll said "steady, albeit modest, domestic momentum'' supported brighter sales outlooks.
The survey found that businesses outside the affected commodity industries and in the service sectors were more optimistic about the coming year. Rising demand from the United States and the past depreciation of the Canadian dollar remained key sources of stronger sales expectations, it found.
The survey also suggested that overall, firms generally expected to add jobs over the coming year — but found hiring intentions remained below post-recession levels and diverged considerably by sector.
Stephen Poloz, governor of the Bank of Canada, speaks during a keynote address at the Canada-US Securities Summit in New York on April 26, 2016. (Photo: Victor J. Blue/Bloomberg via Getty Images)
Plans to reduce staff were prominent among companies in the goods sector, while firms in the service industries intended to boost their labour workforces to meet the growing demand, the bank's poll found.
Overall, the bank described its findings on hiring intentions as "modest.''
Firms also remained cautious about business investment, with many companies tied to the energy sector budgeting for further cuts, the survey said. However, businesses in the service sectors were found to be more willing to invest and expand, it said.
"While still pointing to an increase over the next 12 months, the balance of opinion on investment in machinery and equipment remains subdued,'' the report said.
"We're not out of the woods yet."
CIBC chief economist Avery Shenfeld said the survey indicates that the repercussions from the fall in energy prices will continue to be felt.
"We're not out of the woods yet,'' Shenfeld said in a note to clients. "The energy shock dented Canada over the past 12 months, but the Bank of Canada's latest survey suggests that the tide isn't yet turning back in our favour.''
The Bank of Canada's survey of about 100 companies was conducted between May 9 and June 8, and therefore doesn't reflect any potential changes in expectations linked to the United Kingdom's referendum to leave the European Union.
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Pirates are unlikely victims of the global reduction in oil prices. Piracy in West Africa’s Gulf of Guinea is now at its lowest level since 2002. Speaking to Bloomberg, Florentina Adenike Ukonga, executive secretary of the Gulf of Guinea Commission, said: “With oil at a low bottom price of below $30 per barrel, piracy is no longer such a profitable business as it was when prices hit $106 a barrel a few years ago.” Attacks on oil transported declined by around a third last year, according to a report. Dyrad Maritime found sea crime figures for 2015 "painted a picture of optimism" - although the threat to vessels not carrying oil remains high.
Falling oil prices have translated into rock-bottom "bunker" fuel costs for shipping firms - reducing their incentive to take economical shortcuts. Rather than use routes via the Suez Canal, huge container ships are returning to ports in Asia via the "long way around" the southern cape of Africa. As prices tumble, burning more fuel is cheaper than paying passage rates through the waterway. For one-way passage, an oil transporter can pay as much as $325,000 (2008) to travel through the Suez canal. "For many services it is cheaper to sail south of Africa on the [return journey] than to use the canal routings,” SeaIntel, a shipping monitor, said.
Thousands of oil workers have been sacked as a result of dwindling oil prices. In the UK alone, 70,000 oil-related jobs are feared to have been lost since the price war began 12 months ago. Last month, oil giant BP shed 3,000 jobs on top of previously announced redundancies. An estimated 250,000 jobs have been lost across the oil industry as a whole worldwide.
The plunging oil price has added to turmoil on stock markets the world over, affecting many of the world's biggest pension funds. According to Reuters, shares fell sharply this week as oil prices dropped after Saudi Arabia effectively ruled out reducing the output of oil by its producers. Oil prices, lowered by increased production, are one of a number of factors worrying investors. The FTSE 100 index of Britain's biggest traded companies was down 15.38% on a year ago as of Wednesday. The index holds millions of Brit's pension pots. "The markets are really worried that we are missing something here, that the global slowdown may be more significant than we are recognizing and that slowdown could be causing oil prices to drop, and commodities prices in general," Tracie McMillion of Wells Fargo Private Bank told Reuters.
Perhaps the most surprising effect of diving oil prices has been that demand hasn't risen significantly. Despite costs plunging, European economies remain weak, China is decelerating and growing energy efficiencies mean vehicles need less fuel. So the overall effect has been a flatlining of demand, rather than an increase, according to PwC (PDF).
And despite all of this, airfares for passengers flying in and out of Britain jumped 46% from November to December 2015, the Office of National Statistics found. The increase in fares was the highest since 2002. The "highly variable" changes were a result of increased consumer demand for air travel, the ONS said. In America, air passengers were more likely to benefit from tumbling costs - airfares there were lower throughout most of last year.