Canada business confidence slips on capacity woes

Tue May 4, 2010 11:55am EDT
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OTTAWA (Reuters) - Business confidence in Canada dipped slightly in the second quarter as companies' willingness to invest was tempered by persisting slack in the economy and a strong Canadian dollar, the Conference Board of Canada said on Tuesday.

The board's index of business confidence edged down to 95.6 points from 96.0 in the first quarter.

"Respondents are optimistic about general economic conditions and their firms' financial position, but they remain concerned about weak capacity utilization rates," the Conference Board report said.

"Confidence will not resume its climb until more firms start operating close to capacity."

In a positive trend already flagged by the Bank of Canada, nearly two-thirds of companies surveyed said they intend to boost expenditures over the next six months.

Likewise, overall sentiment on profit margins jumped to a six-year high.

The balance of opinion on overall economic conditions, which is the difference between those who were optimistic and those who were not, was 63, the second-highest level in the last decade, the report said.

But the main worry for companies was poor capacity utilization rates, with sentiment on this issue worsening from the first quarter and with 22 percent of respondents saying it could affect their willingness to invest.

Almost a third said the appreciation of the Canadian dollar to around parity with the U.S. dollar could prompt them to think twice about their capital expenditure plans.

(Reporting by Louise Egan; editing by Peter Galloway)