UPDATE 1-Bank of Canada survey finds businesses still wary

Mon Jul 8, 2013 12:14pm EDT

* Sales growth outlook still positive, less so than Q1 survey

* Improved U.S. demand helps but competition intense

* Business investment still seen growing

* Poloz has said U.S. demand should boost investment eventually

By Randall Palmer

OTTAWA, July 8 (Reuters) - Canadian businesses expect higher sales growth and more investment and employment in the year ahead, helped by improving U.S. demand, but they remain wary given the sluggish economy, a Bank of Canada poll showed on Monday.

The survey of senior managers, taken from May 21 to June 13, showed the balance of opinion on past sales had turned modestly positive and the future sales outlook was also somewhat positive, though less so than a quarter earlier.

"Expectations regarding the economic outlook remain muted. Firms continue to express concerns about the prospects for domestic demand," the central bank said.

"While many firms note that gradually improving U.S. demand bodes well for their sales outlook, they generally expect U.S. growth to be slow over the next 12 months and competitive conditions in the U.S. market to remain intense."

Stephen Poloz said soon after becoming the bank's governor last month that once U.S. demand for Canadian goods picked up, business confidence would build, prompting more investment and ultimately a proper economic recovery.

Business investment has grown more slowly than after previous recessions, and Poloz voiced sympathy in June with executives' caution in investing and said things should turn around as confidence strengthened.

The survey showed the balance of opinion on investment - the difference between the percentage expecting higher investment and the percentage expecting lower investment - was positive but declined to 9 from 12 in the first quarter and 20 in the fourth.

The balance of opinion on higher sales growth fell to 9 from 24 in the first quarter.

Businesses almost unanimously saw inflation remaining within the central bank's target range of 1 to 3 percent over the next two years, with an increasing share, 64 percent, seeing it staying in the lower half of the band.

"The core message from the survey today notes a very subdued demand outlook that despite some tightening in capacity pressures sees little risk of inflation moving higher over the next year," said David Tulk at TD Securities.

"Note that with inflation expected to carve out a trough in the coming quarters and for demand to edge higher over the balance of the year, it is difficult to make the case for more monetary stimulus. The path of least resistance leaves the bank firmly on the sidelines for an extended period of time."

Ninety-one percent of businesses expect to maintain or boost employment, up from 87 percent in the first quarter.

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