Canadian business sentiment drops from high levels: central bank survey

OTTAWA — Canadian business sentiment has fallen from elevated levels as companies point to uncertainty around global trade, the housing sector and the energy industry, according to a new Bank of Canada survey.

The central bank’s measure for corporate confidence dropped from its near-record heights last year and down into negative territory for the first time since the third quarter of 2016.

“The business outlook survey indicator declined from a strongly positive level in the winter survey,” the Bank of Canada said Monday of its latest quarterly poll of around 100 senior managers.

The latest survey, based on interviews conducted between late February and early March, comes after Canadian economic growth saw an abrupt deceleration in the final three months of 2018 as oil prices tumbled.

The pace of sales growth has “moderated slightly” over the previous 12 months following a solid year, the bank said.

Looking ahead, executives were more upbeat, saying they expected the rate of sales to be “marginally faster” over the coming year. The rosier outlook was widespread among companies in the services sector, especially those in information technology and transportation.

“Firms’ expectations for sales remain positive but have softened as several businesses are less optimistic about demand,” the report said.

“The main headwinds are a more uncertain outlook in the Western Canadian energy sector, continued weakness in housing-related activity in some regions, and tangible impacts from global trade tensions.”

The survey also suggested previous concerns about labour shortages had eased, although firms still said it was more challenging to find workers than it was 12 months earlier.

Outside of the energy-dependent Prairies, the Bank of Canada survey said investment and hiring plans remained resilient — particularly in the services sector.

“Despite some softening in business sentiment, intentions to spend on machinery and equipment remain healthy in most regions and continue to point to an increase in investment over the next 12 months,” the central bank said.

Pedro Antunes, chief economist for the Conference Board of Canada, said he’s hopeful there will be a turnaround in the crucial area of investment, otherwise he says it’s unclear what will drive the economy in 2019 and 2020

“I do think that there’s a lot of concern still for businesses in Canada and we need to address some of these issues,” said Antunes, whose team conducts its own business confidence surveys.

He listed challenges in the oilpatch, including difficulties shipping products out of the region, as well as broader concerns about whether Canada is competitive enough to attract investment given the corporate tax cuts in the United States.

TD economists Brian DePratto and Ksenia Bushmeneva wrote in a research note Monday that while the drop in business sentiment would be sure to “draw eyeballs,” the details of the report were a bit more encouraging.

“Indicators of demand are still in positive territory, and the balance of opinion on capital spending remains solid,” they wrote.

Bank of Canada governor Stephen Poloz has said the economy needs a longer stimulative boost from low interest rates to help it overcome domestic and global challenges. He’s predicted the country’s recent economic weakness to only be temporary.

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