While business sentiment has slipped somewhat over the past quarter, the Bank of Canada reported January 12 that Canadian companies remain optimistic overall – with the glaring exception of the energy sector.
The balance of opinion for sales growth expectations – defined as the percentage of firms expecting faster growth minus those expecting slower growth – remained positive, but dipped to 8 this quarter from 35 in the fall survey. However, plunging oil prices have dampened the outlook for the energy sector.
“Several businesses, especially exporters, foresee similar or slightly lower sales growth after experiencing a sales recovery over the past few quarters,” the survey said.
“Firms located in the Prairies or linked to the energy sector, however, anticipate a moderation in the pace of sales growth in the wake of falling oil prices.”
The outlook for investment in machinery and equipment also remains positive but lower than last quarter, with the balance of opinion dropping from 20 to 8.
A majority of businesses expect in CPI inflation to remain in the bottom half of the Bank of Canada’s inflation control range of 1-3%.
Peter Buchanan, senior economist for CIBC World Markets, said investors had expected deterioration in sentiment, but that the report is “substantially softer” than anticipated.
He also points out that the survey was conducted a month ago before oil had fallen to the low levels seen today.
“Today’s report lends support to our view that the drop in energy markets gives the Bank added ammunition for keeping rates low for longer and should be bearish as such for the C$, putting a bid in the front end,” he said.
