August 16, 2011 / 3:38 PM / in 6 years

Canadian corporate profits seen taking a hit

TORONTO (Reuters) - Canadian corporate profits are expected to fall in the second half of the year as a soft U.S. economy takes its toll on exporters and as consumer confidence weakens, the Conference Board of Canada said on Tuesday.

The board’s leading indicator of profitability, which tracks 49 industries, contracted for the first time in almost a year, falling 0.1 percent, after flat readings in the previous two months.

“Overall, the near-term profitability outlook in Canada continues to weaken,” said Lin Ai, an economist at the Conference Board.

In total, 18 industries recorded drops in their indexes in July, the most since the autumn of 2009.

Export-heavy industries closely linked to growth in the U.S. economy, such wood, chemicals and machinery manufacturing, all declined.

Supply-chain disruptions linked to the earthquake and tsunami in Japan, as well as the dampening effect of rising inflation on consumer spending, have added to the weaker outlook, the Conference Board said.

Beyond manufacturing, the insurance and real estate industries were also seen falling off.

The Conference Board said weak stock markets were hurting returns on insurers’ investment portfolios.

The outlook for the real estate sector was also negative due to declining consumer confidence, tighter mortgage rules and expectations of higher interest rates.

Agriculture and forestry experienced declines following a wet spring in the Prairie provinces, while the mining index fell for the second month due to production slumps.

“Some of these factors may prove temporary, such as the effects of wildfires and volatility in financial markets, but the economic problems of Canada’s trading partners in Europe and the U.S. are having real implications for Canadian businesses,” Ai said.

Reporting by John McCrank; editing by Rob Wilson

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