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Businesses cautious amid uncertain outlook

A sign is pictured outside the Bank of Canada building in Ottawa September 7, 2011.

© Chris Wattie / Reuters/REUTERS

Many Canadian businesses are holding back when it comes to investing and hiring, taking a cautious approach amid an uncertain outlook.

Thirty-five per cent of businesses surveyed by the Bank of Canada expect to boost investment in machinery and equipment over the next 12 months, but uncertainty has prompted a majority to pull back on some current and future projects.

Thirty-nine per cent expect investment to be flat, while 26 per cent see it shrinking over the next year, according to the central bank's business outlook survey released Monday.

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Canadian companies also aren't poised to beef up their work forces. Some 47 per cent of the 100 surveyed have no plans to hire, 44 per cent do and 9 per cent see cuts ahead.

"The more muted enthusiasm regarding the outlook is driving firms to rely on existing capacity and meet operational needs through modest hiring in lieu of significant increases in capital expenditure," David Onyett-Jeffries, an economist with Royal Bank of Canada, in a research note after the central bank's report.

Forty-two per cent of companies said their sales volumes have increased over the past year, but they don't see that having staying power.

"They generally expect U.S. growth to be slow over the next 12 months and competitive conditions in the U.S. market to remain intense," the Bank of Canada said.

In fact, the balance of opinion for sales growth over the next year narrowed to 9 per cent from 24 per cent last quarter.

This comes as the Bank of Canada's separate senior loan officer survey found an easing of credit conditions in the last quarter.

The survey results are consistent with modestly slower economic growth in Canada, said senior economist Michael Gregory of BMO Nesbitt Burns.

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Given that modest growth profile most economists think there will be little reason for the Bank of Canada to change course when it holds its next meeting and releases its monetary policy report next week.

Indeed, 92 per cent of the firms surveyed expect inflation to stay within the central bank's target range of between 1 per cent and 3 per cent.

"We continue to expect real GDP to ring in at a moderate 1.7-per-cent rate in 2013 with a stronger finish in the second half of the year," said Jonathan Bendiner, an economist with Toronto-Dominion Bank.

"As a result, we continue to expect that interest rates will remain anchored to their current level until the end of 2014," added Mr. Bendiner.

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