Hiring and investment intentions among Canadian businesses are at the lowest since the 2009 recession, with the pessimism linked to sliding commodity prices, a quarterly central bank survey found.
The balance of opinion for machinery and equipment investment fell to negative 3, compared with a reading of plus 14 in the prior quarter, the Bank of Canada reported Monday from Ottawa. The latest Business Outlook Survey showed 29 percent of respondents predicted a decline over the next 12 months, versus 26 percent who saw an increase.
“Business sentiment has deteriorated as the negative effects of the commodity price shock continue to unfold and spread beyond the resource sector,” the central bank’s report said. “Exporters not directly affected by lower commodity prices continue to benefit from strong U.S. demand and the weak Canadian dollar.”
The economy is in a “complex” and long-lasting realignment to the commodity-price crash that has followed a decade-long boom, Governor Stephen Poloz said in a speech Thursday. Poloz cut interest rates last January and July and some investors are betting a third move is needed to spark a recovery.
The balance of opinion on employment over the next year fell to 12 from 28, and for future sales growth it was unchanged at 16. A positive balance of opinion indicates more respondents see an increase than a decrease.
Many companies are limiting their investment spending to repairs and replacement of existing gear instead of expansion, and plans to reduce staff “aren’t confined to the commodity- producing sectors and regions,” the central bank said.
The 10 percent of respondents who said the consumer price index will advance by less than 1 percent was the highest since the second quarter of 2009. Another 70 percent said inflation would be between 1 percent and 2 percent.
“The lack of momentum in the Canadian economy, together with lower oil prices, was cited as a key driver of firms’ inflation expectations,” the report said.
A separate survey of lending officers showed credit conditions tightened, with a reading of 5.6 in the fourth quarter.
The senior loan officer survey gathered responses from Dec. 7 to Dec. 11. The business survey polled about 100 executives from Nov. 12 to Dec. 8. --With assistance from Erik Hertzberg in Ottawa.
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