The global credit crunch is making itself felt on Canadian businesses, the Bank of Canada said Monday in in its quarterly business outlook survey.

The number of firms that said it was more difficult to get financing in the previous three months was more than twice as high as the number that said it was easier (41 per cent versus 17 per cent).

"Reports of tighter credit conditions were widespread across sectors and regions, with most firms attributing the tightening to a market-wide repricing of risk," the central bank said.

This was the third consecutive quarter in which credit conditions have continued to tighten.

The credit market squeeze began last summer as financial institutions pulled back on loaning money in the wake of the collapse in the U.S. subprime mortgage market. Many structured debt products had subprime junk buried in them, but the lack of transparency made it difficult to determine how much. 

Lower interest rates coming: analysts

"Tighter credit conditions continue to loom over the economy, something that is getting a higher policy priority these days," said BMO Capital Markets economist Michael Gregory.

"There is sufficient fodder in this survey for the Bank of Canada to justify a [half-percentage point] rate cut next week, which is the direction we judge they are leaning."

When companies were asked whether they expected sales over the next 12 months would grow, stay the same or fall from the previous year's rate, a slightly greater percentage expected sales would fall than rise (38 per cent versus 36 per cent). Another 26 per cent expected no change. That's the weakest balance of opinion regarding future sales growth in more than six years.

Firms that are directly exposed to the weaker U.S. economy are more pessimistic about future sales, the bank said.

Spending forecast weak

Only 28 per cent of firms plan on boosting their spending on machinery and equipment in the coming year. That's the weakest in almost five years.  

The survey also found that employers are generally forecasting higher employment in their firms in the coming year, except for those in the manufacturing sector.

Firms in western Canada — especially those in British Columbia — are still reporting difficulties in hiring enough qualified staff.

About 42 per cent of firms surveyed expect that the cost of goods and services they buy over the next 12 months will grow at a greater rate than in the past year. Only 16 per cent expect the rate of input inflation will go down. That 26-point difference is the highest since the autumn 2005 survey, when Hurricane Katrina sent energy prices skyrocketing.

To carry out its quarterly business outlook survey, the regional branches of the Bank of Canada talk to about 100 major firms.