Business sentiment has deteriorated over the past quarter and the effects of low commodities prices have spread across many sectors beyond resources, according to the Bank of Canada’s Business Outlook Survey released January 11.
Canadian business owners report their lowest investment and hiring intentions since 2009, with the Prairie provinces reporting the biggest decline in business sentiment overall, but a weakened outlook was found in other regions as well, the central bank said.
“That’s a result of firms being more concerned on the domestic economic outlook, a result of the spillover effects from the crude shock,” said CIBC Economics’ Nick Exarhos.
“The employment balance was able to remain in black, but the trend there is weaker and the overall level there is also the weakest since the Great Recession.”
In its report, the Bank of Canada said, “The negative effects of the oil price shock are…increasingly spreading beyond the energy-producing regions and sectors. For example, many businesses across the energy supply chain continue to struggle as they adjust to an environment of weak demand.
“As well, more firms exposed to slowing demand from their energy-related customers or from households in affected regions feel an indirect, yet often significant, impact on their sales perspectives.”
Investment intentions have fallen 17 percentage points, and are now in negative territory. Many firms do not expect to invest beyond maintenance and repair of existing equipment and overall, investment is expected to shrink 3%. Hiring intentions also plummeted, dropping 16 percentage points to 12%.
Despite the increasingly negative sentiment, many firms are saying they expect a modest improvement in sales over the next 12 months. Sentiment in this area is unchanged from last quarter, with future sales expected to increase 16%.
Douglas Porter, chief economist at BMO Financial Group, points out that this survey was conducted a month ago, “so it does not take into account the latest financial market turbulence.”
Porter said the central bank is unlikely to cut the overnight rate in the immediate future, but “the market is now fully prices for one rate cut before the end of the year.”
The Bank is scheduled to make its next policy announcement January 20.
