OTTAWA — Rising oil and food prices, along with the persistent strength of the loonie, are chipping away at plans in Canada’s business community for hiring and investment, the Bank of Canada says.
The central bank said Monday its new spring business outlook survey shows Canadian firms remain bullish about the future, but less so than three months ago.
The firms said they have moderated their expectations across a range of indicators and activities. They now expect a more moderate pace of sales growth, investment and hiring over the next 12 months than in the previous year.
“Businesses remain positive about the economic outlook, although some forward-looking indicators have eased from the levels recorded in recent surveys,” the bank said.
“Some firms . . . cited the negative implications of high prices for energy and food on household spending as a factor dampening sales expectations. A number of firms (also) voiced concerns about the impact of the high Canadian dollar and strong foreign competition.”
Overall, the bank said the survey results show that the economic recovery in Canada is advancing, and more firms, particularly in the Prairies, report operating near capacity.
The optimism also tended to be highest among commodity-related industries.
But overall, firms are also not as bullish as they were in the winter survey three months ago.
The Bank of Canada uses the findings in its deliberations over interest rate policy, but nothing in the current report suggests governor Mark Carney is primed to hike rates on April 12, the next opportunity.
Most economists continue to believe that Carney will leave a hike on the sidelines until July.
On hiring intentions, half the firms surveyed said they expected to add staff in the next year, as opposed to only 13 per cent that intend to downsize. That’s a balance of opinion in favour of additional hiring of 37, slightly lower than three months ago.
The latest survey was conducted between Feb. 14 and March 10 and involved senior management from 100 firms representative of the Canadian economy.
By a balance of opinion of 13, more firms than not said they expected their sales volume to increase at a greater rate in the next year.
As well, more firms than not expect to invest more in machinery and equipment than they did a year ago, by a factor of 24 percentage points.
The firms cited concerns that input prices are rising, although they are less confident they will be able to pass on those higher costs to customers, partly because of strong foreign competition.
Firms said inflation pressure is increasing, driven by higher food and energy prices. But a majority still expect prices to remain within the central bank’s control range of between one and three per cent over the next two years.
In a separate survey, Canadian senior loan officers report that credit conditions continue to ease for firms on both price and non-price aspects.