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Canadian companies remain pessimistic, just not as pessimistic as before, says new survey


Mon Apr 13, 3:49 PM





By Julian Beltrame, The Canadian Press

OTTAWA - Canadian businesses remain gloomy about their prospects over the next year in the face of the global recession, although they're not quite as negative as they were three months ago, the Bank of Canada said Monday.
The central bank's quarterly survey of 100 selected companies found business sentiment "negative" across a wide range of issues, such as sales volumes, product pricing, investment intentions and credit conditions.
And a separate survey of lenders by the Bank of Canada found the cost of obtaining credit and conditions remained a problem.
The only good news Monday was that business sentiment wasn't as bleak as three months ago, when the winter survey recorded the lowest level since the survey began in 1997.
"The balance of opinion for both past and future sales remain markedly negative, although no longer at record levels," the bank said in its report Monday.
"As in the winter survey, many companies expect a decline in their sales volumes over the next 12 months. The weak outlook is widespread, since the global recession is expected to continue to affect foreign and domestic demand across the country."
In the survey of senior loan officers, the Bank of Canada said lending conditions continued to tighten for firms in Canada, with pricing being a key impediment.
While non-price factors such as availability were less generalized than three months ago, a record 82 per cent of loan officers said tightening was being done through higher prices relative to base rates.
"The balance of opinion on tightening in pricing conditions was the highest recorded since the survey began in 1999," the bank said.
Economist Douglas Porter of BMO Capital Markets said the results aren't a surprise given that the world is in recession and Canada likely experienced the worst economic contraction in more than 50 years during the first quarter of 2009.
The surveys were conducted in February and March.
Porter noted that although the results were better than the previous reports, the Bank of Canada appeared in its commentary to view the glass as half-empty.
"I took it that they read this as being consistent with a very serious recession and that there is still a case to be made for further easing, whether it's through a reduction in their overnight target rate or even some modest quantitative easing," he said.
Finance Minister Jim Flaherty and central bank governor Mark Carney have focused on credit conditions as a key condition for resumption of growth in the Canadian economy, as well as the world.
In a little more than a year, the central bank has cut its overnight rate to a record low 0.5 per cent and injected billions of dollars into money markets in an attempt to ease credit, so firms and households can borrow for investment and spending.
Carney is expected to cut short-term interest rates another quarter point next week, as well as unveil options for so-called "quantitative easing' which could involve the central bank increasing the money supply to increase the availability and cost of credit.
Both businesses and loan officers reports tight credit conditions.
The business conditions survey found 52 per cent of firms saying they expect their sales volumes to grow more slowly over the next 12 months, with many expecting an outright contraction in sales.
The survey also found that on a balance, more businesses expect to spend less on investments on machinery and equipment in the coming year, and a majority - 59 per cent - expect the growth in prices they can command for their products to lessen.
"The balance of opinion on output prices has reached its lowest level since the survey began in 1997," the central bank said.
"An environment of weak demand was cited as a main factor."
The news is not as dark on the labour front, even though Canadian firms have shed over 270,000 jobs in the first three months of 2009.
Going forward, the balance of opinion showed that firms expected their level of employment 12 months from now to be essentially the same.
However, unlike the past few surveys, hiring intentions in resource-rich Western Canada are now weaker than firms in the rest of the country, the central bank said.