Bloomberg News

Bank of Canada’s Business Survey Shows Less Sales Optimism

October 17, 2011

(Updates with economic comment from report in fifth paragraph.)

Oct. 17 (Bloomberg) -- The Bank of Canada’s quarterly survey of executives found the least optimism about future sales growth since the beginning of 2009, with signs of weak global demand leading companies to curb hiring and investment plans.

The share of firms predicting faster sales growth over the next year fell to 39 percent from 49 percent in the last survey, while those calling for slower sales growth increased to 33 percent from 29 percent. The so-called balance of opinion dropped to 6 from 20, the Ottawa-based Bank of Canada’s quarterly Business Outlook Survey said.

“Responses to the autumn survey point to less optimism among firms,” the report said. “Weaker expectations for U.S. growth and a more uncertain global outlook weigh on business sentiment.”

Governor Mark Carney will probably keep the benchmark interest rate at 1 percent at the Bank of Canada’s next decision Oct. 25, according to a Bloomberg calculation based on trading on overnight index swaps. Carney has kept the rate unchanged since September 2010, and has said that global economic tensions have increased in the last few months.

“This moderation in confidence provides further reason for the Bank of Canada to maintain its highly accommodative stance,” Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto, wrote in a note to clients.

Spending, Employment

The balance of opinion for new investment spending over the next year fell to 22 percent from 30 percent. For employment, the balance of opinion fell to 38 percent from a record 53 percent in the last survey.

“Amid concerns about the level of demand, many firms forecasting an increase in sales growth over the next 12 months reported that they expect to achieve this by introducing new products or by adopting strategies to increase market share,” the report said.

Inflation expectations have moved back toward the central bank’s 2 percent target, the survey showed, with 88 percent predicting the consumer price index will advance between 1 percent and 3 percent over the next two years, compared with 80 percent in the last survey. The share who said it would advance faster than 3 percent declined to 7 percent from 18 percent.

Credit conditions eased in the third quarter, the business survey showed, a result matched by a separate survey of loan officers.

The business survey found 24 percent of companies said credit conditions had loosened over the past three months, while 11 percent said they were tighter. The balance of opinion of negative 13 compared with negative 24 in the prior survey, with figures less than zero indicating easing credit terms.

The lending officers survey’s balance of opinion went to negative 26.9 from negative 49.6.

The senior loan officer survey gathered responses from “major Canadian financial institutions” from Sept. 19 to Sept. 23. The business survey polled about 100 executives from Aug. 22 to Sept. 22.

--With assistance from Ilan Kolet in Ottawa. Editors: Paul Badertscher, Chris Wellisz

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net


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