MRO Magazine

Canadian firms see sales growth slowing as economic concerns weigh on confidence


January 9, 2012
By PEM Magazine

OTTAWA — The steady drum-beat of global economic concerns is weighing on the confidence of Canadian firms and their sales expectations, the Bank of Canada said Monday in its latest analysis of the corporate sector.

A survey for the central bank shows business confidence is well off post-recession highs across the broad spectrum of issues — from sales expectations to investment and hiring intentions, to their ability to pass through their costs.

But they are most gloomy about sales. For the first time in almost three years, more firms on balance expect sales growth to slow rather than increase over the next 12 months.

It is difficult to say whether business executives are the most pessimistic since the recession because the question posed is relative to the past year, but the central bank notes the result suggests firms are more worried about selling their products into the softening demand globally and domestically.


“Overall, the weak U.S. economic outlook, concerns about adverse effects from the situation in Europe and an expected slowing in household spending were among the factors dampening sales prospects,” the bank report states.

“Of those firms anticipating higher sales growth over the next 12 months, many cite plans for new product development or diversification into new domestic or external markets.”

Even respondents in the resource-rich West expect sales growth to slow, albeit coming off a strong performance in 2011, the bank says.

In the survey, which was conducted between mid-November and mid-December, 41 per cent said they expected their sales pace to slow, as opposed to 37 per cent that expect an increase. The rest were neutral.

The bank found that on balance, slightly fewer firms expected to increase their spending on machinery and equipment, and slightly more said conditions for obtaining credit had tightened over the past three months.

As separate survey of loan officers suggested “almost no change in overall business-lending conditions” during the fourth quarter of 2011, however.

The business confidence outlook is conducted quarterly and is sometimes cited by the Bank of Canada in its assessment of the economy and in setting interest rate policy. The central bank is scheduled to release a new forecast next Wednesday, a day after its interest rate announcement.

Although the survey shows lower business confidence, it is unlikely the findings are negative enough to compel governor Mark Carney to abandon his current wait-and-see stance on interest rates, which haven’t changed in 16 months.

In past policy announcement, Carney has stressed that he views the current one-per-cent overnight rate to already be stimulative.

On employment intentions, a balance of opinion of 45 per cent of firms said they expected to take on more workers in the next 12 months, slightly more than the result three months ago, although below the post-slump high.

Intentions to increase employment were highest in the Prairies region, the bank said.

As well, slightly more firms reported labour shortages than in the previous survey.

The balance of opinion on output price increases was modestly negative, but similar to three months ago.

“Firms generally cite weaker demand conditions or competitive pressures as the main factors restraining increases in output prices,” the bank said, noting that the view was most widespread among firms in the service sector.