OTTAWA: In its latest quarterly Business Outlook Survey, the Bank of Canada reported that companies believe the resources sector may be bottoming out after a two-year downturn. The overall outlook for exports remained supportive with foreign demand providing steady support, although US growth expectations have trended down slightly.
Overall sales volumes had stabilised, although there was little evidence of a significant improvement with the series still below 2014 levels. There was a small improvement in sales expectations with companies still not expecting to see any tangible short-term benefit from the fiscal stimulus. Investment and employment intentions have improved with capital spending cuts tapering in the energy sector, although most investment is still concentrated in the services sector. Overall capacity constraints remain below the survey average.
Inflation expectations remain subdued due to diminishing effects of previous currency weakness and intense competition. Inflation expectations had also edged down and concentrated in the bottom half of the bank’s target range. The inflation reading for output prices was at the lowest since late 2015. Looking at the employment sector, there are indications that labour shortages have bottomed out. Although there is still substantial labour-market slack, the results suggest that it may have levelled off in the latest quarter.
Credit conditions had eased slightly although with no significant changes and there were no significant financing constraints. The survey overall will provide some net optimism surrounding the growth prospects, but the principal short-term Bank of Canada focus is likely to be on inflation and inflation expectations. The Canadian dollar was slightly stronger with USD/CAD edging down to 1.3235 from 1.3245 with price action calming after earlier volatility following US and Canadian jobs data.
