A crisis of confidence continues to linger half a decade after the global financial crisis began.
The seemingly endless barrage of bad news, unpredictable "black swans" and growing loss aversion is clearly taking its toll on business confidence.
According to the Young Presidents Organization (YPO) global pulse survey of CEOs, overall confidence has trended down over the last three years, especially in the European Union, Southeast Asia, Latin America and Canada. In April, confidence in Canada declined to lows not seen since mid-2009.
The Bank of Canada's business outlook survey released last week didn't show many signs of improvement. About 42% of firms expected faster sales growth over the next 12 months. That's down from 50% in the previous outlook survey taken in the spring. A third of the companies surveyed expect sales to slow. That's up from 26%.
The growing pessimism appears to be coming from lower expectations for economic growth.
Executives remained uncertain over future demand for their products and services both in Canada and the U.S.
While many companies said improving U.S. demand would be good for their business, they still expected growth to be slow over the next 12 months as competitive pressures remain high south of the border.
Muted business confidence looks to limit the prospects for increased business investment.
About 35% of firms surveyed expected to increase their investment in machinery and equipment, down from 39% in the first quarter report. More respondents also said economic uncertainty has convinced them to delay current and future projects, and companies were willing to make do with existing production capacity rather than expand their labour force.
If there's any silver lining to muted expectations, it's that inflation isn't expected to jump.
The vast majority (92%) of respondents expected prices to remain within the Bank of Canada's 1% to 3% target range over the next two years and most expected it to remain on the lower end of the range.
According to RBC's analysis, such muted price increases bode well for borrowers.
It still expects the central bank to maintain its current monetary policy low rates until 2014's second half. •
