UPDATE 1-Bank of Canada survey shows still-tepid business sentiment

Fri Oct 9, 2015 10:43am EDT
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(Adds business sentiment data, loan officer survey)

OTTAWA Oct 9 (Reuters) - Overall business sentiment in Canada remains tepid as firms adjust to a drop in commodity prices and a weaker Canadian dollar that helps some and hurts others, according to a Bank of Canada survey released on Friday.

The bank's quarterly business outlook survey showed companies had experienced a flattening in sales growth over the past 12 months. But forward-looking indicators of activity improved, including expectations that sales will see some acceleration over the next year.

Even there, however, companies' views diverged. Firms that had restructured or refocused their efforts thought they were in a better position to benefit from strengthening foreign demand, but the outlook remained weak for firms in the energy sector and supply chain, and those exposed to household spending.

The majority of companies especially in the manufacturing sector, expect a boost to their sales from an improving U.S. economy.

The Bank of Canada has cut interest rates twice this year to help combat the effect of cheaper oil prices on the economy, but it is widely expected to hold rates steady at its Oct. 21 policy announcement.

The balance of opinion gauge on investment in machinery and equipment rose, suggesting more widespread intentions to increase spending in the coming 12 months. Intentions to increase employment were positive but the balance of opinion remained modest.

Companies across several industries said they saw benefits from the weakening of the Canadian dollar over the past year. Exporters were seeing higher margins on their U.S. sales, while others were seeing increased business related to tourism.

But others said the weak domestic currency was a challenge for them, particularly in the wholesale and retail trade sector. Many had already passed the higher cost of inputs onto their customers but said raising prices further would be detrimental to their sales.

The survey found that credit conditions had tightened somewhat over the past three months, particularly for those exposed to the energy sector. A separate senior loan officer survey released by the bank suggested business lending conditions were largely unchanged in the third quarter. (Reporting by Leah Schnurr, editing by David Ljunggren and W Simon)