(Adds survey material on sales, inflation, credit conditions;
By Randall Palmer
OTTAWA, July 7 Fewer Canadian firms expect to
have difficulty meeting a surge in demand than did in the first
quarter, the Bank of Canada said on Monday in a sign that
pressures on production capacity are lessening rather than
The central bank's quarterly Business Outlook Survey said
overall business sentiment was little changed in the second
quarter, with expectations for sales growth remaining positive
and continued indications that business export sentiment is
On production capacity, however, it said: "The pickup in
sales activity anticipated in recent surveys has been slow to
materialize, and firms have been making shorter-term investments
to better utilize and upgrade their existing capital."
The number of companies that predicted difficulty in meeting
unanticipated demand fell to 34 percent from 45 percent in the
first quarter. The Bank of Canada watches the output gap closely
for any signs that inflation may be building.
The survey also reported little change in the percentage of
companies facing labor shortages, 22 percent in the second
Businesses expect further U.S. economic strengthening, it
said, "and some businesses note that the lagged effects of the
depreciation of the Canadian dollar are also supporting sales
It said companies selling domestically remain hopeful that
sales growth will improve but that competition remains
challenging "and many firms have yet to see signs of a notable
and sustained strengthening in demand".
Inflation expectations remain well-anchored, with 95 percent
of respondents saying it will stay within the Bank of Canada's
target range of 1 to 3 percent, and the majority of them seeing
it in the lower half of the range.
Businesses marked a shift in their expectation for input
prices, with the balance of opinion now seeing prices rising at
a slower pace as upward pressure from the lower Canadian dollar
"Overall, a softer set of readings from the Bank of Canada's
survey will be seen as providing some support for maintaining
its dovish stance, more critical these days given the runup
we've seen in recent core CPI (consumer price index) figures,"
said Avery Shenfeld at CIBC World Markets.
Businesses also saw credit as easy or relatively easy to
get, a sentiment echoed in a separate Bank of Canada survey of
senior loan officers, which reported further easing in
(Editing by Peter Galloway)