Canadian businesses aren't as confident as they were a few months ago, but are maintaining a degree of faith in the face of threats from Europe to China to the crucial U.S. market.
Given the listless U.S. recovery and the ongoing debt crisis in Europe that has pushed much of that continent into recession, it would not be a shock to see sentiment falling in export-heavy economies such as Canada. And there is mounting concern about the emerging markets that drive global commodity prices; the Organisation for Economic Co-operation and Development said Monday slow growth in China and India is worsening.
For now, though, Canadian executives are relatively upbeat, according to a quarterly Bank of Canada survey released Monday. In fact, the poll shows companies' hiring intentions are at the highest level in more than a year.
Nearly half – or 47 per cent – of the executives polled in the central bank's Business Outlook Survey said they expect sales growth to accelerate over the next year, while 32 per cent said it would slow. The "balance of opinion" of 15 is smaller than the previous survey's reading of 35, marking the biggest quarterly drop since 2008. Still, most economists noted that the earlier reading, from April, seemed suspiciously high, and that in light of the increasingly uncertain backdrop, the Bank of Canada is likely relieved that optimism about sales didn't slip further.
Also, on top of the most positive response on hiring intentions since the first half of 2011, firms in the survey – taken from May 22 to June 14, amid some of the worst euro-related flare-ups to date and as the U.S. recovery was stalling – said their investment plans had essentially not changed from the last poll.
"I think (Bank of Canada policy makers) will take some comfort from this report, because I suspect it's a little bit better than what they were expecting," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
The central bank's quarterly survey is important because unlike most economic data, which measure past performance of a given indicator, the poll provides something close to a real-time snapshot of what executives are seeing on the ground and how that is shaping their plans for the months ahead.
The survey is among the last major reports that Bank of Canada Governor Mark Carney and his policy team will see before they release new projections next Wednesday for the Canadian, U.S. and global economies.
Mr. Carney has already acknowledged that his initial forecasts for the first half of 2012 were a bit too bullish, so next week's revisions, at a minimum, are likely to reinforce expectations that he is still many months away from raising interest rates. A big question, however, is what is in store over the second half of the year.
For instance, reports last Friday indicated that private-sector hiring on both sides of the Canada-U.S. border was dangerously tepid in June. At the same time, almost 60 per cent of firms surveyed by the Bank of Canada said they plan to increase hiring over the next year, up from 55 per cent in the last poll and compared with just 6 per cent that said they would likely cut staff. That yielded a balance of opinion of 53, matching a record set last year.
"When you're in a gradual recovery, you're plagued with mixed indicators, not uniformly strong and not uniformly weak" Mr. Ferley said. "Maybe this provides some encouragement that the last couple of months have been understated in terms of the trend in the labour market."
With commodity prices still historically high, it is possible investment in energy and mining projects will continue, which implies that the plans for more hiring will translate into actual jobs.
Nonetheless, Mr. Ferley and others said they will need to see hard evidence of this before incorporating it into their projections.