Canadian Manufacturing

Business optimism still high in Canada despite low oil prices

by Andy Blatchford, The Canadian Press   

Canadian Manufacturing
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Bank of Canada survey found business optimism varied by region; remained lower in oil-rich Western Canada

OTTAWA—While plummeting oil prices have darkened the confidence of firms linked to the energy sector, the Bank of Canada said Canadian businesses overall see brighter days ahead.

The central bank’s latest business outlook survey found companies in energy-rich Western Canada planned to reduce their investments in equipment and hiring following the oil-price collapse.

On the other hand, Eastern and Central Canadian companies said they were planning to invest more, particularly in the manufacturing industry.

“Although the balance of opinion on future sales growth declined sharply, it remains positive, indicating that, overall, firms continue to expect a modest further acceleration in sales over the next 12 months,” the Bank of Canada said in its analysis of the survey results.


“Firms located in the Prairies or linked to the energy sector, however, anticipate a moderation in the pace of sales growth in the wake of falling oil prices.”

BMO Capital Markets senior economist Benjamin Reitzes noted the business optimism survey showed the net percentage of firms expecting higher sales growth over the coming year fell 27 percentage points to eight per cent.

That represents a two-year low, he wrote in a note to clients.

Reitzes also pointed to evidence in the results that regional changes are afoot.

“The survey highlights the coming shift in growth away from the energy (sector) in Western Canada toward manufacturing and exports in Central and Eastern Canada,” he wrote.

The results were based on the survey of senior managers from about 100 representative firms.

It was conducted between Nov. 17 and Dec. 11.

CIBC senior economist Peter Buchanan noted in a message to clients that the poll was completed before the “full depths of the drop in oil prices became apparent.”

Oil prices recently dipped below US$50 a barrel, a drop of more than 50 per cent from their highs last summer.

“(This) report lends support to our view that the drop in energy markets gives the Bank (of Canada) added ammunition for keeping rates low for longer,” Buchanan wrote.

The central bank has not moved its trend-setting interest rate, which sits at one per cent, since September 2010.

Last month, Bank of Canada governor Stephen Poloz said while the country has seen signs of increasing exports, business investment and job creation, it will likely take another couple of years before the economy will have steady growth with inflation on target.

Poloz has also explored the potential impact of tumbling oil prices on the country’s economic outlook, warning the free fall could slow the pace of Canadian gross domestic product (GDP) growth by a third of a percentage point.

The business outlook survey also found companies that expected to benefit—directly or indirectly—from the improving United States economy were more optimistic about the future than firms more focused on the domestic market.

“Expectations of a strengthening U.S. economic outlook are widespread,” said the central bank’s analysis, which also noted some companies expected the lower Canadian dollar would help them reclaim market share and increase competitiveness.

The Bank of Canada also released its senior loan officer survey, which showed overall business-lending conditions were largely unchanged in the last quarter of 2014.


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