Canadian Firms Are Most Optimistic on Hiring Since Oil Shock
Canadian executives are the most optimistic about investment and hiring since the 2014 oil shock, further evidence the country’s economy is on the mend.
Measures of investment, employment and sales prospects improved, according to the Bank of Canada’s Business Outlook Survey. Companies also reported firming input pressures across all regions. Many highlighted the risks of rising protectionism.
Monday’s readings are another signal Canada’s economy may be turning the page on the oil crash that began more than two years ago. Reports Friday from Statistics Canada showed an unexpected surge in full-time employment and the first trade surplus in more than two years.
“You have the economy firing on a number of cylinders here,” Paul Ferley, assistant chief economist at Royal Bank of Canada, said by phone from Toronto. Policy makers will “probably suggest that the data is starting to show improvement, but emphasize it’s early going yet.”
That marks a change from a few months ago. In October, Bank of Canada Governor Stephen Poloz cut his growth forecast and said policy makers “actively” discussed the possibility of adding more stimulus as exports and business investment remained subdued. Monday’s survey is the Ottawa-based bank’s last major publication before Jan. 18, when Poloz and his Governing Council peers will meet to decide interest rates.
The balance of opinion between companies expecting to increase investment in machinery and equipment versus those predicting a decline rose to 24 from 18 in the fourth quarter, matching the figure from the second quarter of 2014. The employment balance of 37 and the future sales reading of 26 were also the highest since 2014.
“Business prospects have improved following two years of overall modest activity,” the bank said in its report. “The drag from the oil price shock and related spillovers is gradually dissipating.”
The quarterly survey is the first to reflect the U.S. election that made Donald Trump the President-elect. Business leaders were split between prospects for American economic growth and the risk of trade protectionism. The U.S. consumes about three quarters of Canada’s exports.
The share of companies predicting “strong growth” in the U.S. rose to 24 percent from 15 percent. Another 70 percent called for slow growth. The survey didn’t give a detailed breakdown on the concern about possible trade protectionism.
The figures are a healthy reading for a Canadian economy due for a bigger contribution from business spending, Robert Both, global macro strategist at Toronto-Dominion Bank’s TD Securities unit, said by phone. Policy makers “will be reassured that businesses have a bright outlook and Trump isn’t weighing too heavily on sentiment,” he said.
Executives are also paring back expectations for sluggish inflation. The share of respondents who said consumer prices will advance between 1 percent and 2 percent over the next two years fell to 66 percent, from a record 76 percent in the previous survey. This round of questions covered about 100 executives from Nov. 14 to Dec. 5.