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Companies optimistic even before new continental trade pact: Bank of Canada


OTTAWA — A new Bank of Canada poll suggested Monday that companies are optimistic about the year ahead — especially when it comes to sales growth, foreign demand and their investment plans.

The quarterly survey was conducted between mid-August and mid-September — before Canada agreed to an updated North American free trade deal that has alleviated some of the economic uncertainty.

But even with the trade-related unknowns still in the picture, overall business sentiment in Canada was running at near-record levels.

The upbeat results were released a little over a week before the Bank of Canada's next policy rate decision, which is widely expected to produce another interest rate hike. The bank carefully studies its forward-looking business outlook survey ahead of rate decisions.

The value of the Canadian dollar rose right after the report's release Monday and analysts said it bolstered expectations governor Stephen Poloz will increase the central bank's key interest rate target next week. Poloz has raised the rate four times since mid-2017.

"Building on an improvement in sales over the past 12 months, firms expect sales growth to increase further," said the central bank's report, which is based on a poll of senior managers from about 100 firms.

"Reports of better sales indicators for domestic and foreign customers are widespread."

The survey, however, also found that some firms expected their sales momentum to be limited in the months ahead by labour shortages, competition and regulation.

On investment intentions, the survey said that in order to keep up with rising demand — including an expected lift in foreign sales — companies indicated they would pump even more money into their operations over the coming year than they had predicted last summer.

"Many firms reported increasing investment spending in response to anticipated strength in demand and capacity pressures," the bank said.

The poll also found firms' hiring intentions for the next 12 months came in lower than previous surveys.

The dip followed a steady increase in hiring expectations over the last several surveys, but the report indicated that overall companies were still looking to add workers across regions and sectors.

Companies, on balance, reported labour shortages intensified over the past 12 months — with the biggest concerns coming from employers in Quebec.

The poll listed jobs in construction, transportation and information technology as the toughest positions to fill.

Some companies linked the challenge to the aging population and changing occupational preferences.

On exports, a majority of the companies predicted strong growth in U.S. demand over the coming year, mostly because of U.S. tax reforms, higher government spending and a improving energy sector.

"While U.S. trade protectionism was cited as a constraint for some firms selling into the United States, most expect to benefit from healthy U.S. household demand and robust U.S. business investment," the Bank of Canada's document said.

Benjamin Reitzes of BMO Capital Markets wrote in a research note Monday that perhaps the biggest positive in the central bank's report was that the strong results came before the United-States-Mexico-Canada-Agreement deal was done.

"With that significant uncertainty behind us, business sentiment should improve further," Reitzes said.

"It's all systems go for a rate hike at next week's policy meeting."

TD economists wrote Monday that the business outlook survey shows "Canadian firms remain bullish on the future."

Combined with stronger than expected growth in the third quarter, Fotios Raptis and Ksenia Bushmeneva said the report "should provide the Bank of Canada with more than enough conviction to move rates higher by another 25 (basis points) next Wednesday."

 

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Andy Blatchford, The Canadian Press

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