07/06/2015 10:46 EDT | Updated 07/06/2016 05:59 EDT

Bank Of Canada Survey Points To Regional Divide In Attitudes On Economy

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OTTAWA - The Bank of Canada says there is a divide in business confidence across the country as low oil prices weigh on the outlook for some regions more than others.

The central bank's summer Business Outlook Survey released Monday suggests businesses on the Prairies expect sales to slow over the next 12 months as the oil price shock spreads across sectors.

However, the Bank of Canada says the story isn't the same across the country.

"Similar to the past two surveys, the low commodity-price environment is driving the divergence in firms' outlook: on the one hand firms in the energy-producing regions and those that are part of the energy supply chain continue to face tough market conditions," the report said.

"On the other hand, domestic demand is strengthening in regions that are less exposed to the energy sector."

Overall, the central bank's survey said more firms reported sales growth over the last 12 months than those that saw sales drop, but the margin shrank compared with earlier surveys. As well, the balance of opinion of firms who expect sales to grow over the next 12 months improved modestly.

In terms of spending on machinery and equipment, the survey points to a moderate increase in investment spending over the next year.

However, there are distinct regional differences with plans to increase spending more prevalent in Central Canada and the manufacturing sector. Energy-related regions and sectors expect to continue to see a decrease in spending.

A lower dollar is also affecting investment decisions as some businesses suggest they plan to restrain spending as a result of higher costs for imported machinery and equipment, while others which are benefiting from higher margins on U.S.-dollar denominated sales plan to use the profits to increase investment.

Plans to hire staff have improved in areas less affected by energy prices with the overall balance of opinion on hiring over the next 12 months improving.

Meanwhile, the number of firms reporting labour shortages that are hurting their ability to meet demand remains low and labour shortages are generally less intense than a year ago.

The Bank of Canada is expected to make its next rate announcement and update its economic outlook next week.

The central bank is widely expected to cut its expectations for growth in the second quarter following a pullback by the economy in April.

The Bank of Canada's Senior Loan Officer Survey, which was also released Monday, suggested that overall business-lending conditions were broadly unchanged in the second quarter with a tightening in the oil and gas sector.

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