Canadian companies see better sales, grudge about US measures: central bank study
By Promit Mukherjee and David Lüngren
OTTAWA, Jan 20 (Reuters) – Canadian companies see improved demand and sales next year, mainly due to lower prices, but are concerned about the potential damage from promised U.S. policies, the Bank of Canada said on Monday.
The bank’s fourth quarter business outlook survey revealed overall business sentiment was subdued. The survey will be closely monitored by the BOC as it provides insight into companies’ investment and employment intentions.
The business sentiment indicator – a measure of expectations in the current economic climate – improved to -1.18, but the best position over the past five quarters remains below the average.
That’s down from 16 percent in the third quarter. 15% of companies are now planning for a recession in Canada next year.
“After a period of weak demand, companies expect their sales growth to improve in the coming year. This is expected mainly due to the recent reduction in interest rates and further reductions in the future,” he said.
The outlook was conducted from Nov. 7-27, before the bank’s latest cut of 50 basis points on Dec. 11, when U.S. President Donald Trump took office on Nov. 25 vowing to impose tariffs of 25% on all Canadian goods.
A separate online poll of business leaders conducted by the central bank in December showed uncertainty about whether US policies will fail, with 40% of respondents saying they expected the results to be negative.
The bank has cut interest rates by 175 basis points since June to stimulate the weak economy and combat rising unemployment. Rates hit a two-decade high of 5% before the bank began easing policy.
“Companies’ intentions to increase investment in the coming year are wide-spread and higher than their historical averages,” Bossi said in the study.
But he warned that uncertainty related to US trade policy was deterring companies from investing, although the energy sector could be an exception.
Companies expect sales prices to rise over the next 12 months, but improved demand conditions will allow them to offset cost increases and restore margins.
The survey shows that more than normal corporate planning will cause employment levels to be somewhat flat in the coming year. However, they also don’t see the need to downsize the workforce.
Canada’s economy expanded by nearly four times the forecast number of jobs in December and hit the highest number in two years, but unemployment remains at historic highs.
