October 22, 2019 / 3:29 PM / a month ago

Bank of Canada third-quarter survey says business sentiment improving slightly

OTTAWA (Reuters) - Canadian firms expect a moderate increase in sales growth over the coming year but regional differences are more pronounced and foreign demand continues to be weighed down by trade tensions, a Bank of Canada survey said on Tuesday.

FILE PHOTO: A cyclist rides past the Bank of Canada building, Ontario, Canada, July 11, 2018. REUTERS/Chris Wattie

Results of the central bank’s quarterly business outlook survey points to “positive views” in sentiment in central Canada and “widespread weakness” in the Prairie provinces of Alberta, Saskatchewan and Manitoba following a slight improvement in sentiment in the previous June survey, it said.

Businesses’ expectations about U.S. economic growth have also weakened somewhat, the survey found, with some now expecting a “small U.S. recession over the next 12 months.” Several firms said they anticipated their sales would be negatively affected - either indirectly or directly - by a slower U.S. economy.

Meanwhile, investment and hiring plans “are healthy,” mainly outside Canada’s energy-producing regions, the bank said.

The business survey was released less than two weeks before the Bank of Canada is set to announce its next overnight interest rate decision on Oct. 30. Canada’s central bank has sat on the sidelines since October 2018, citing strong domestic economic data.

The Canadian dollar declined slightly to C$1.3100, or 76.34 cents U.S, after the survey was released. Money markets see almost no chance of a rate cut next week.

“The central bank’s use of the word ‘healthy’ to describe hiring and capital spending intentions outside the energy provinces suggests that it’s not inclined to cut rates just yet,” said Avery Shenfeld of CIBC Capital Markets.

Of the companies surveyed, 48% expected sales to grow at a faster rate than in the past 12 months, while 25% predicted a lesser rate of sales growth. In the previous survey, the balance was 44% to 21%.

Firms surveyed frequently said strategic investments were planned in technology, automation and software systems as well as increases to capital spending plans to support demand. However, businesses in the Prairies said regulation, uncertainty and their balance sheet were holding back their investment plans.

The majority of businesses, the survey noted, said they still anticipated inflation will be in the lower half of the central banks target range over the next two years.

Growth in input prices, businesses said, is expected to soften modestly thanks to less pressure from various commodity-related inputs. However, firms said they expected output prices would grow at a slightly greater rate than over the past 12 months.

Firms also reported a “marginal easing” in credit conditions over the past three months.

Reporting by Kelsey Johnson and Dale Smith; Additional Reporting by Fergal Smith in Toronto; Editing by Tom Brown and Sandra Maler

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