OTTAWA (Reuters) - Europe’s debt crisis and concerns about environmental policy and its impact on projects such as the stalled Keystone XL oil pipeline dampened Canadian business confidence in the second quarter, according to a Deloitte survey of chief financial officers.
The mood was nonetheless far more upbeat than in the United States, where unemployment topped the concerns of large corporations, a trend that has lasted several quarters.
The survey, released on Thursday, showed that “net optimism” among Canadian CFOs - the difference between those more optimistic for their own company and those less optimistic - stood at +42 in Canada, down from +57 in the first quarter.
“Our view is that this is a reflection of everything that we read about and hear about primarily in the euro zone and continued concerns in that part of the world,” said Trevor Nakka, co-leader of Deloitte Canada’s CFO program.
By contrast, the balance of opinion fell to zero in the United States and the average across North America - the United States, Canada and Mexico - was +11, compared with +48 last quarter.
Because Canada’s economy is heavily reliant on oil and gas extraction, mining, and other resource industries, senior executives identified issues affecting those sectors as their biggest concern. Sixty-three percent said environmental policy and regulation was among the top three economic challenges.
“There’s potentially some level of concern that is emanating possibly from the oil and gas sector ... about the mood around environmental policy with issues like Keystone XL and the proposed Gateway project,” Nakka said.
“Those are not specific things that we can point to but our sense is that those are likely things that are being projected.”
In January, U.S. President Barack Obama nixed TransCanada Corp’s (TRP.TO) planned Keystone XL pipeline to carry Canadian crude to the U.S. Gulf Coast, saying it needed more environmental review. He has since pledged to fast-track approvals for the southern section of that line.
Enbridge Inc’s (ENB.TO) proposed Northern Gateway pipeline from Alberta to the West Coast of Canada has also been snagged as aboriginal groups and environmentalists raise concerns about the possibility of oil spills.
Companies have also likely taken note of the increasingly choleric clash between Canada’s Conservative government and the opposition over the environmental impact of developing the Alberta oil sands - the world’s third-largest crude reserve.
The government pushed legislation through Parliament this month to streamline the regulatory approval process for large energy and mining projects. Deloitte, an accounting and professional services provider, plans to track how those changes may change executives’ sentiment in upcoming surveys.
Access to capital and borrowing costs was the second-biggest concern of Canadian CFOs in the quarterly survey, possibly reflecting concerns about potential contagion in the banking system from the European debt crisis and stricter capital requirements imposed by banking regulators, Nakka said.
Canadian CFOs were somewhat less optimistic than their U.S. counterparts on sales growth in the coming year, predicting 5.9 percent growth, versus U.S. estimates of 6.7 percent growth.
They also see earnings growth of 4.6 percent, compared with 12.3 percent growth expected in the United States.
Nine-three CFOs in the three countries participated in the survey in the two weeks ended May 29. More than three-quarters of them were from companies with more than $1 billion in annual revenue and 22.6 percent were Canadian.
Editing by Jeffrey Hodgson; and Peter Galloway