OTTAWA (Reuters) - Canadian business sentiment worsened in the third quarter due to the uncertain global economy, and investment intentions fell to a three-year low at a time when policymakers are prodding companies to put their cash to productive use.
The Bank of Canada’s business outlook survey on Monday showed companies were less optimistic on sales, employment and investment and saw inflation easing to the low end of the central bank’s target range.
“Firms are generally more circumspect about near-term investment decisions and are focusing on minimizing costs,” the bank said in a release.
Canada’s export-reliant economy has fully recovered from the 2008-09 recession and looks set to grow moderately this year and next, but the European debt crisis and spotty U.S. recovery has led businesses to play it safe.
The bank surveyed senior managers from about 100 firms from August 27 to September 20.
Only 37 percent said they expected to invest more on machinery and equipment in the next 12 months while 29 percent expected to invest less. The difference between the two - the so-called balance of opinion - remained positive at 8 but was sharply below the second-quarter balance of 24.
Bank of Canada Governor Mark Carney has chided corporate Canada for being overly cautious and sitting on piles of cash instead of spending it on equipment or technology to improve productivity. Business investment fell sharply during the 2008-09 recession and while it has bounced back, it has not fully recovered.
On balance, firms see no change in the pace of growth in the next year after reporting less robust sales performance in the past 12 months. Companies still expect to hire more staff in the next year but the pace of hiring is seen sharply down from what firms predicted in the second quarter.
Ninety-five percent of those surveyed expect inflation to remain within the Bank of Canada’s 1 to 3 percent range, but just over half now see the rate hovering at the bottom end of that range compared with 44 percent who made that forecast in the second quarter.
Reporting by Louise Egan; Editing by James Dalgleish